UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD from to

For the quarterly period ended ~~September 30, 2010~~March 31, 2011

Commission file number 1-3560

P. H. Glatfelter Company

(Exact name of registrant as specified in its charter)


Pennsylvania		~~23-0628360~~
(State or other jurisdiction of		23-0628360
incorporation or organization)		(IRS Employer Identification No.)

96 South George Street, Suite 500
York, Pennsylvania 17401		(717) 225-4711
(Address of principal executive offices)		(Registrant’s telephone number, including area code)

N/A
(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yesþ Noo.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer ~~or a smaller reporting company. See the definitions of “large~~and large accelerated ~~filer,” “accelerated~~ filer” ~~and “smaller reporting company”~~ in Rule 12b-2 of the Exchange Act. ~~(Check one):~~


Large ~~accelerated filer~~Acceleratedo	Accelerated ~~filer~~þ	Non-accelerated ~~filer~~o	Smaller reporting companyo.
		(Do not check if a smaller reporting company)	~~Smaller reporting company~~o.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso Noþ.

As of ~~October 31, 2010,~~April 30, 2011, P. H. Glatfelter Company had ~~45,859,616~~46,039,000 shares of common stock outstanding.

PART I

~~Item 1 — Financial Statements~~


Item 1		— Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three months ended						Nine months ended
	September 30						September 30						Three months ended March 31
In thousands, except per share	2010			2009			2010			2009			2011			2010

Net sales	$	379,097		$	312,358		$	1,079,153		$	882,889		$	396,771		$	337,275
Energy and related sales — net		3,312			2,132			8,834			6,194			2,987			3,607

Total revenues		382,409			314,490			1,087,987			889,083			399,758			340,882
Costs of products sold		326,669			232,025			952,571			704,303			339,591			296,666

Gross profit		55,740			82,465			135,416			184,780			60,167			44,216

Selling, general and administrative expenses		27,782			29,303			91,299			80,364			31,770			34,670
Gains on dispositions of plant, equipment and timberlands, net		(150	)		(9	)		(318	)		(681	)		(3,175	)		—

Operating income		28,108			53,171			44,435			105,097			31,572			9,546
Non-operating income (expense)
Other non-operating income (expense)
Interest expense		(6,565	)		(4,528	)		(19,045	)		(14,798	)		(6,460	)		(5,663	)
Interest income		232			318			570			1,583			207			170
Other — net		(251	)		204			(3,868	)		86			7			(3,983	)

Total other income (expense)		(6,584	)		(4,006	)		(22,343	)		(13,129	)
Total other non-operating expense														(6,246	)		(9,476	)

Income before income taxes		21,524			49,165			22,092			91,968			25,326			70
Income tax (benefit) provision		(17,913	)		3,171			(17,074	)		14,566
Income tax provision														7,900			444

Net income	$	39,437		$	45,994		$	39,166		$	77,402
Net income (loss)													$	17,426		$	(374	)


Earnings per share
Earnings (loss) per share
Basic	$	0.86		$	1.01		$	0.85		$	1.70		$	0.38		$	(0.01	)
Diluted		0.85			1.00			0.85			1.69			0.38			(0.01	)

Cash dividends declared per common share		0.09			0.09			0.27			0.27			0.09			0.09

Weighted average shares outstanding
Basic		45,950			45,699			45,898			45,649			46,070			45,836
Diluted		46,286			45,865			46,330			45,712			46,410			45,836

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30			December 31			March 31			December 31
In thousands	2010			2009			2011			2010

Assets
Current assets
Cash and cash equivalents	$	63,333		$	135,420		$	115,937		$	95,788
Accounts receivable—net		160,859			119,319			167,366			141,208
Inventories		193,808			168,370			209,288			201,077
Prepaid expenses and other current assets		65,060			96,947			46,288			64,617

Total current assets		483,060			520,056			538,879			502,690

Plant, equipment and timberlands — net		623,783			470,632			616,223			608,170

Other assets		225,892			199,606			233,261			230,887

Total assets	$	1,332,735		$	1,190,294		$	1,388,363		$	1,341,747


Liabilities and Shareholders’ Equity
Current liabilities
Current portion of long-term debt	$	—		$	13,759
Short-term debt		1,026			3,888		$	690		$	798
Accounts payable		98,876			63,604			111,511			98,594
Dividends payable		4,191			4,170			4,205			4,190
Environmental liabilities		608			440			250			248
Other current liabilities		104,104			100,249			101,123			109,316

Total current liabilities		208,805			186,110			217,779			213,146

Long-term debt		332,058			236,936			332,393			332,224

Deferred income taxes		89,962			96,668			103,415			94,918

Other long-term liabilities		164,583			159,876			150,717			149,017

Total liabilities		795,408			679,590			804,304			789,305

Commitments and contingencies		—			—			—			—

Shareholders’ equity
Common stock		544			544			544			544
Capital in excess of par value		49,004			46,746			48,989			48,145
Retained earnings		738,427			711,765			762,674			749,453
Accumulated other comprehensive loss		(124,311	)		(119,885	)
Accumulated other comprehensive income (loss)								(104,262	)		(121,247	)

		663,664			639,170			707,945			676,895
Less cost of common stock in treasury		(126,337	)		(128,466	)		(123,886	)		(124,453	)

Total shareholders’ equity		537,327			510,704			584,059			552,442

Total liabilities and shareholders’ equity	$	1,332,735		$	1,190,294		$	1,388,363		$	1,341,747

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine months ended
	September 30						Three months ended March 31
In thousands	2010			2009			2011			2010

Operating activities
Net income	$	39,166		$	77,402
Adjustments to reconcile to net cash provided by operations:
Net income(loss)							$	17,426		$	(374	)
Adjustments to reconcile to net cash provided by operating activities
Depreciation, depletion and amortization		48,802			45,823			16,877			15,781
Amortization of debt issue costs and original issue discount								664			506
Pension expense, net of unfunded benefits paid		6,422			5,045			2,242			2,215
Deferred income tax provision (benefit)		(12,755	)		(18,599	)		2,434			(135	)
Gains on dispositions of plant, equipment and timberlands, net		(318	)		(681	)		(3,175	)		—
Share-based compensation		4,333			3,704			1,445			1,514
Alternative fuel mixture credits, net of credits applied to taxes due		—			(34,888	)
Cellulosic biofuel and alternative fuel mixture credits								17,833			—
Change in operating assets and liabilities
Accounts receivable		(18,606	)		197			(24,636	)		(14,510	)
Inventories		1,358			33,645			(4,305	)		(1,889	)
Prepaid and other current assets		35,868			5,245			(885	)		(4,103	)
Accounts payable		20,731			1,492			10,266			17,632
Environmental matters		11			(7,383	)		(13	)		37
Accruals and other current liabilities		(5,904	)		8,220			(9,028	)		353
Other		4,272			292			468			3,343

Net cash provided by operating activities		123,380			119,514			27,613			20,370

Investing activities
Expenditures for purchases of plant, equipment and timberlands		(23,269	)		(16,704	)		(8,088	)		(6,136	)
Proceeds from disposals of plant, equipment and timberlands, net		333			728			3,405			—
Proceeds from timberland installment sale note receivable		—			37,850
Acquisition of Concert Industries Corp., net of cash acquired		(229,080	)		—			—			(233,006	)

Net cash (used) provided by investing activities		(252,016	)		21,874
Net cash used by investing activities								(4,683	)		(239,142	)

Financing activities
Proceeds from $100 million 7⅛% note offering, net of original issue discount		95,000			—			—			95,000
Payments of note offering and credit facility costs		(5,297	)		—
Net repayments of revolving credit facility		—			(1,623	)
Net repayments of short term debt		(2,979	)		(2,640	)
Repayment of Note payable, due March 2013		—			(34,000	)
Principal repayments — 2011 Term Loan		(14,000	)		(12,000	)
Payments of dividends		(12,556	)		(12,433	)
Payments of note offering costs								—			(2,804	)
Net borrowings of revolving credit facility								—			27,854
Net (repayments) borrowings of other short-term debt								(107	)		1,082
Repayment of 2011 Term Loan								—			(4,000	)
Payment of dividends								(4,206	)		(4,165	)
Proceeds from stock options exercised and other		147			—			6			107

Net cash provided (used) by financing activities		60,315			(62,696	)		(4,307	)		113,074

Effect of exchange rate changes on cash		(3,766	)		5,314			1,526			(3,147	)

Net decrease in cash and cash equivalents		(72,087	)		84,006
Net increase (decrease) in cash and cash equivalents								20,149			(108,845	)
Cash and cash equivalents at the beginning of period		135,420			32,234			95,788			135,420

Cash and cash equivalents at the end of period	$	63,333		$	116,240		$	115,937		$	26,575


Supplemental cash flow information
Cash paid (received) for
Interest	$	11,788		$	9,523		$	285		$	259
Income taxes		(43,004	)		16,175			(15,267	)		(2,533	)

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and fiber-based engineered ~~products.~~materials. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gatineau, Quebec, Canada; Gloucestershire (Lydney), England; Caerphilly, ~~Wales;~~Wales, Gernsbach and Falkenhagen, Germany; Scaër, France; and the Philippines. Our products are marketed ~~throughout the United States and in over 85 other countries,~~worldwide, either through wholesale ~~paper~~ merchants, brokers and agents or directly to customers.

ACCOUNTING POLICIES

Basis of PresentationThe unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its ~~wholly-owned~~wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our ~~2009~~2010 Annual Report on Form 10-K (“~~2009~~2010 Form 10-K”).

Accounting EstimatesThe preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.

ACQUISITION

On February 12, 2010, we completed the acquisition of all the issued and outstanding stock of Concert Industries Corp. (“Concert”), a manufacturer of highly absorbent cellulose based airlaid non-woven materials, for cash totaling ~~$231.9~~$231.1 million based on the currency exchange rates on the closing date, and net of a post-closing working capital ~~adjustment.~~adjustments. Concert ~~with approximately 590 employees,~~ has operations located in Gatineau, Quebec, Canada and Falkenhagen, Brandenburg, Germany. Annual revenues totaled $203.0 million in 2009.

Concert manufactures highly absorbent cellulose based airlaid non-woven materials used in products such as feminine hygiene and adult incontinence products, pre-moistened cleaning wipes, food pads, napkins and tablecloths, and baby wipes. The acquisition of Concert affords us the opportunity to grow with our customers who are the industry leaders in feminine hygiene and adult incontinence products. We believe that our acquisition of Concert provides us with an industry-leading global business that sells highly specialized, engineered fiber-based ~~products~~materials to niche markets with substantial barriers to entry.

The share purchase agreement provides for, among other terms, ~~i) an adjustment to the purchase price based on final working capital as of the closing balance sheet, which has yet to be fully agreed to; and ii)~~ indemnification provisions for claims that may arise, including among others, uncertain tax positions and other third party claims.

During the ~~second quarter~~third and fourth quarters of 2010, we and the sellers reached agreement on ~~certain~~post-closing working capital related adjustments that reduced the purchase price by ~~$3.9~~$4.7 million. In addition, as a result of further evaluation of asset appraisals, contingencies and other factors, in accordance with FASB ASC 805, Business Combinations, we ~~have~~ determined that certain ~~retrospective~~ adjustments were required to be made to the February 12, 2010 ~~provisional~~original allocation of the purchase price to assets acquired and liabilities ~~assumed were required.~~assumed. The adjustments included $0.6 million recorded in the first quarter of 2011 to reduce the fair value of acquired accounts receivable.

GLATFELTER

~~-5-~~- 5 -

The following summarizes the impact of the adjustments recorded insince the ~~second and third quarters of 2010 and retrospectively reflected in the financial statements. This provisional~~original estimated purchase price allocation ~~is based on information currently available to management:~~together with the final purchase price allocation:


								As
	As originally							originally		Cumulative
In thousands	presented		Adjustment			Adjusted		presented		Adjustments			Final

Assets
Cash	$	2,792	$	—		$	2,792	$	2,792	$	—		$	2,792
Accounts receivable		24,703		—			24,703		24,703		(583	)		24,120
Inventory		28,034		—			28,034		28,034		—			28,034
Prepaid and other current assets		5,941		(1,327	)		4,614		5,941		(1,316	)		4,625
Plant, equipment and timberlands		177,253		8,068			185,321		177,253		9,101			186,354
Intangible assets		3,138		1,902			5,040		3,138		1,902			5,040
Deferred tax assets and other assets		20,738		(6,572	)		14,166		20,738		(5,830	)		14,908

Total		262,599		2,071			264,670		262,599		3,274			265,873
Liabilities
Accounts payable and accrued expenses		25,322		591			25,913		25,322		611			25,933
Deferred tax liabilities		1,267		2,166			3,433		1,267		4,069			5,336
Other long term liabilities		212		3,240			3,452		212		3,310			3,522

Total		26,801		5,997			32,798		26,801		7,990			34,791

Total purchase price	$	235,798	$	(3,926	)	$	231,872	$	235,798	$	(4,716	)	$	231,082

The adjustments set forth above did not materially impact previously reported results of operations, earnings per share, or cash ~~flows.~~

~~We are~~flows and, therefore, were not retrospectively reflected in the process of finalizing potential additional working capital adjustments and final valuations of assets acquired, including plant and equipment and intangible assets, certain contingencies and the impact on taxes of any final adjustments to such valuations, all necessary to account for the Concert transaction in accordance with the acquisition method of accounting set forth in FASB ASC 805. Accordingly, the provisional purchase price allocation set forth above is based on all information available to us at the present time and is subject to change, and such changes could be material.condensed consolidated financial statements.

For purposes of allocating the total purchase price, assets acquired and liabilities assumed are recorded at their estimated fair market value. The allocation set forth above is based on management’s estimate of the fair value using valuation techniques such as discounted cash flow models, appraisals and similar methodologies. The amount allocated to intangible assets represents the estimated value of ~~technology and~~ customer sales contracts and relationships. Deferred tax assets reflect the estimated value of future tax deductions acquired in the transaction.

ended March 31, 2010. Deferred financing fees incurred in connection with issuing debt related to the acquisition totaled ~~$3.1 million through September 30, 2010.~~$3.0 million. The unamortized fees are recorded in the accompanying consolidated balance sheet under the caption “Other assets”.

In addition, in connection with the Concert acquisition, we entered into a series of forward foreign currency contracts to hedge the acquisition’s Canadian dollar purchase price. All contracts were settled for cash during the first quarter of 2010 and resulted in a $3.4 million loss, net of realized currency translation gains, which is presented under the caption “Other-net” in the accompanying condensed consolidated statements of ~~income for the nine months ended September 30, 2010.~~income.

Our results of operations for the first ~~nine~~three months of 2010 include the results of Concert prospectively ~~since~~from the ~~acquisition was completed on~~ February 12, ~~2010.~~2010 date of acquisition. All such results are reported herein as the Advanced Airlaid Materials business unit, a new reportable segment. ~~Net sales~~Revenue and operating income of Concert included in our consolidated results of operations totaled ~~$58.0~~$61.1 million and ~~$1.2 million, respectively, for the third quarter of 2010. Net sales and operating income were $138.1 million and $3.4~~$1.7 million, respectively, for the first ~~nine months~~quarter of 2011 and $28.1 million and $0.2 million, respectively, for the first quarter of 2010.

GAINS ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS, NET

~~Sales~~During the first quarter of 2011 we completed sales of timberlands and other assets ~~in the first nine months of 2010 and 2009 are~~as summarized in the following table:


Dollars in thousands	Acres		Proceeds		Gain (loss)			Acres		Proceeds		Gain

2010
2011
Timberlands		71	$	182	$	168			717	$	3,373	$	3,158
Other		n/a		151		150			n/a		32		17

			$	333	$	318			717	$	3,405	$	3,175


2009
Timberlands		189	$	728	$	699
Other		n/a		—		(18	)

			$	728	$	681

There were no sales in the first quarter of 2010.

~~ALTERNATIVE FUEL MIXTURE CREDITS~~

The U.S. Internal Revenue Code provided a tax credit for companies that use alternative fuel mixtures to produce energy to operate their businesses. The credit, equal to $0.50 per gallon of alternative fuel contained in the mixture, was refundable to the taxpayer. We began mixing black liquor and diesel fuel in late February 2009 and filed an application to be registered as an alternative fuel mixer with the Internal Revenue Service in March 2009. On May 11, 2009, we were notified by the Internal Revenue Service that our application to be registered as an alternative fuel mixer was approved. We subsequently filed an excise tax refund claim for the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe, OH facilities during the period February 20, 2009 through May 17, 2009 and received a payment from the Internal Revenue Service (“IRS”) on June 30, 2009 in the amount of $29.7 million.

For the period May 18, 2009 through September 30, 2009, we earned an additional $45.8 million of alternative fuel mixture credits. Of this amount, $10.9 million was used to reduce estimated interim tax payments. We claimed the balance of this amount as a non-taxable income tax credit in connection with the filing of our 2009 federal corporate income tax return.

The accompanying condensed consolidated statement of income for the three months and nine months ended September 30, 2009 includes $33.0 million and $73.8 million, respectively, recorded as a credit to cost of products sold representing alternative fuel mixture credits earned through September 30, 2009, net of associated expenses. On an after-tax basis, we recognized $32.9 million of alternative fuel mixture credits during the third quarter of 2009 and $63.3 million in the nine months ended September 30, 2009.

EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings (loss) per share (EPS):


	Three months ended
	September 30				Three months ended March 31
In thousands, except per share	2010		2009		2011		2010

Net income	$	39,437	$	45,994
Net income (loss)					$	17,426	$	(374	)

Weighted average common shares outstanding used in basic EPS		45,950		45,699		46,070		45,836
Common shares issuable upon exercise of dilutive stock options and restricted stock awards		336		166		340		—

Weighted average common shares outstanding and common share equivalents used in diluted EPS		46,286		45,865		46,410		45,836


Earnings per share
Earnings (loss) per share
Basic	$	0.86	$	1.01	$	0.38	$	(0.01	)
Diluted		0.85		1.00		0.38		(0.01	)


	Nine months ended
	September 30
In thousands, except per share	2010		2009

Net income	$	39,166	$	77,402

Weighted average common shares outstanding used in basic EPS		45,898		45,649
Common shares issuable upon exercise of dilutive stock options and restricted stock awards		432		63

Weighted average common shares outstanding and common share equivalents used in diluted EPS		46,330		45,712


Earnings per share
Basic	$	0.85	$	1.70
Diluted		0.85		1.69

~~The following table sets forth the number~~Approximately 1.7 million and 1.6 million of potential common shares ~~that~~ have been excluded from the computation of diluted earnings per share for the ~~indicated~~three month period ended March 31, 2011 and 2010, respectively, due to their anti-dilutive nature.

2010 2009

Three months ended September 30 1,531,675 1,244,410
Nine months ended September 30 1,519,175 2,287,620

We recognize interest and penalties related to uncertain tax positions as income tax expense. Interest expense recognized in the ~~third~~first quarter of ~~2010~~2011 totaled ~~$0.2~~$0.3 million and ~~$0.1~~$0.2 million in the ~~third~~first quarter of ~~2009. The comparable amounts for the first nine months of 2010 and 2009 were $0.7 million and $0.7 million, respectively.~~2010. As of ~~September 30, 2010,~~March 31, 2011, accrued interest payable was ~~$4.9~~$4.1 million, ~~including acquisition accounting adjustments,~~ and as of December 31, ~~2009,~~2010, accrued interest payable was $3.8 million. We did not record any penalties associated with uncertain tax positions during the first ~~nine months~~quarters of ~~2010~~2011 or ~~2009.~~

~~Cellulosic Biofuel Production Credit~~In March 2010, our application to be registered as a cellulosic biofuel producer was approved by the Internal Revenue Service. The U.S. Internal Revenue Code provides a non refundable tax credit equal to $1.01 per gallon for taxpayers that produce cellulosic biofuel. In a memorandum dated June 28, 2010, the Internal Revenue Service issued guidance concluding that black liquor sold or used before January 1, 2010, qualifies for the cellulosic biofuel producer credit (“CBPC”) and no further certification of eligibility was needed.

In connection with the filing of our 2009 income tax return, we claimed $23.1 million, net of taxes, of CBPC, and as a result we expect to receive $14.8 million of a cash tax refund during the fourth quarter. The CBPC claimed is attributable to black liquor produced and burned from January 1, 2009 through February 20, 2009, the date we began mixing black liquor and diesel fuel to qualify for alternative fuel mixture credits.2010.

GLATFELTER

-7-

8.7.

STOCK-BASED COMPENSATION

The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of up to 5,500,000 shares of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

Restricted Stock Units (“RSU”) and Performance Share Awards (“PSAs”)Awards of ~~RSUs~~RSU and PSA are made under our LTIP. The RSUs vest based solely on the passage of time, generally on a graded scale over a three, four, and five-year period. PSAs were issued in March 2011 to members of senior management and cliff vest December 31, 2013, and upon the achievement of predetermined, three-year cumulative performance targets. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than target depending on actual financial performance. For both RSUs and PSAs, the grant date fair value of the awards is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will be made in shares of our common stock. The following table summarizes RSU and PSA activity during the first ~~nine~~three months of ~~the indicated periods:~~2011 and 2010:


Units	2010			2009			2011			2010

Beginning balance		564,037			486,988			579,801			564,037
Granted		202,589			205,360			227,860			126,450
Forfeited		(19,953	)		(6,000	)		(6,073	)		(8,820	)
Restriction lapsed/shares delivered		(31,323	)		(5,747	)		—			(16,252	)

Ending balance		715,350			680,601			801,588			665,415

The amount granted in 2011 includes 96,410 PSAs. The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:


	September 30				March 31
In thousands	2010		2009		2011		2010

Three months ended	$	436	$	448	$	466	$	405
Nine months ended		1,274		1,175

Stock Only Stock Appreciation Rights (SOSARs)Under terms of the SOSAR, the recipients receive the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the strike price. The SOSARs vest ratably over a three year period and have a term of ten years.

The following table sets forth information related to outstanding SOSARS.


	2010					2009					2011					2010
				Wtd Avg					Wtd Avg					Wtd Avg					Wtd Avg
				Exercise					Exercise					Exercise					Exercise
SOSARS	Shares			Price		Shares			Price		Shares			Price		Shares			Price

Outstanding at Jan. 1,		1,762,020		$	11.84		718,810		$	14.63		2,061,877		$	12.28		1,762,020		$	11.84
Granted		455,050			13.81		1,043,210			9.91		345,290			12.56		423,450			13.95
Exercised		—			—		—			—		—					—			—
Canceled/forfeited		(64,420	)		11.71		—			—
Canceled												(42,146	)		11.22		(50,383	)		10.92

Outstanding at Sept 30,		2,152,650		$	13.04		1,762,020		$	11.84
Outstanding at Mar 31,												2,365,021		$	12.34		2,135,087		$	12.27

*SOSAR Grants*
Weighted average grant date fair value per share	$	4.67				$	2.83				$	4.09				$	4.72
Aggregate grant date fair value (in thousands)	$	2,117				$	2,957				$	1,412				$	1,998
Black-Scholes Assumptions
Dividend yield		2.60	%				3.63	%				2.87	%				2.58	%
Risk free rate of return		2.51					2.26					2.55	%				2.54	%
Volatility		42.32					40.59					41.91	%				42.31	%
Expected life	6 yrs					6 yrs					6 yrs					6 yrs

The following table sets forth SOSAR compensation expense for the periods indicated:


	September 30				March 31
In thousands	2010		2009
In thousands					2011		2010

Three months ended	$	486	$	596	$	469	$	610
Nine months ended		1,671		1,293

9.8.

RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The following table provides information with respect to the net periodic costs of our pension and post retirement medical benefit plans.

Three months ended
September 30
In thousands 2010 2009

Pension Benefits

Service cost $ 2,415 $ 2,158
Interest cost 5,897 5,861
Expected return on plan assets (10,046 ) (9,884 )
Amortization of prior service cost 614 537
Amortization of unrecognized loss 3,314 3,186

Net periodic benefit cost $ 2,194 $ 1,858

Other Benefits

Service cost $ 730 $ 654
Interest cost 843 878
Expected return on plan assets (134 ) (122 )
Amortization of prior service cost (305 ) (308 )
Amortization of unrecognized loss 385 519

Net periodic benefit cost $ 1,519 $ 1,621

Nine months ended
September 30
In thousands 2010 2009

Pension Benefits

Service cost $ 7,108 $ 6,475
Interest cost 17,950 17,582
Expected return on plan assets (30,190 ) (29,663 )
Amortization of prior service cost 1,845 1,610
Amortization of unrecognized loss 10,218 9,559

Net periodic benefit cost $ 6,931 $ 5,563

Other Benefits

Service cost $ 2,189 $ 1,963
Interest cost 2,528 2,634
Expected return on plan assets (403 ) (365 )
Amortization of prior service cost (917 ) (925 )
Amortization of unrecognized loss 1,154 1,556

Net periodic benefit cost $ 4,551 $ 4,863

September 30, Dec. 31,
In millions 2010 2009

Pension Plan Assets

Fair value of plan assets at end of period $ 499.1 $ 485.7


	Three months ended
	March 31
In thousands	2011			2010

Pension Benefits
Service cost	$	2,605		$	2,422
Interest cost		6,064			6,008
Expected return on plan assets		(10,465	)		(10,060	)
Amortization of prior service cost		646			617
Amortization of unrecognized loss		3,544			3,399

Net periodic benefit cost	$	2,394		$	2,386

Other Benefits
Service cost	$	760		$	761
Interest cost		717			880
Expected return on plan assets		(130	)		(135	)
Amortization of prior service cost		(305	)		(306	)
Amortization of unrecognized loss		258			453

Net periodic benefit cost	$	1,300		$	1,653

rate plus an applicable margin ranging from 175 basis points to 275 basis points according to our corporate credit rating determined by S&P and Moody’s. For non-US dollar denominated borrowings, interest is based on (b) above.

The credit agreement contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, ~~limits~~enter into certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios, each as defined in the credit agreement, including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio; and ii) a consolidated EBITDA to interest expense ratio. A breach of these requirements would give rise to certain remedies under the credit agreement, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

On April 28, 2006 we completed an offering of $200.0 million aggregate principal amount of our 7⅛% Senior Notes due 2016 (“7⅛% Notes”). Net proceeds from this offering totaled approximately $196.4 million, after deducting the commissions and other fees and expenses relating to the offering. The proceeds were primarily used to redeem $150.0 million aggregate principal amount of our then outstanding 6⁷/₈6⅞% notes due July 2007, plus the payment of applicable redemption premium and accrued interest.

On February 5, 2010, we issued an additional $100 million in aggregate principal amount of 7⅛% Notes due 2016 (together with the April 28, 2006 offering, the “Senior Notes”). The notes were issued at 95.0% of the principal amount. Net proceeds from this offering after deducting offering fees and expenses, were used to fund, in part, the Concert acquisition. The original issue discount is being accreted as a charge to income on the effective interest method.

Interest on the Senior Notes accrues at the rate of 7⅛% per annum and is payable semiannually in arrears on May 1 and November 1.

The Senior Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity or a default under the credit agreement that accelerates the debt outstanding

In November 2007, we sold approximately 26,000 acres of timberland. In connection with that transaction, we formed GPW Virginia Timberlands LLC (“GPW Virginia”) as an indirect, wholly owned and bankruptcy-remote subsidiary of ours. GPW Virginia received as consideration for the timberland sold in that transaction a $43.2 million, interest-bearing note that matures in 2027 from the buyer, Glawson Investments Corp. (“Glawson”), a Georgia corporation, and GIC Investments LLC, a Delaware limited liability company owned by Glawson. The Glawson note receivable is fully secured by a letter of credit issued by The Royal Bank of Scotland plc. In January 2008, GPW Virginia monetized the Glawson note receivable by entering into a $36.7 million term loan agreement (the “2008 Term Loan”) with a financial institution. The 2008 Term Loan is secured by all of the assets of GPW Virginia, including the Glawson note receivable, the related letter of credit and additional notes with an aggregate principal amount of $9.2 million that we issued in favor of GPW Virginia (the “Company Note”). The 2008 Term Loan bears interest at a six month reserve adjusted LIBOR rate plus a margin rate of 1.20% per annum. Interest on the 2008 Term Loan is payable semiannually. The principal amount of the 2008 Term Loan is due on January 15, 2013, but GPW Virginia may prepay the 2008 Term Loan at any time, in whole or in part, without premium or penalty. During the ~~first nine months of 2010,~~quarter ended March 31, 2011, GPW Virginia received aggregate interest income of ~~$0.8~~$0.3 million under the Glawson note receivable and the Company Note and, in turn, incurred interest expense of ~~$0.5~~$0.2 million under the 2008 Term Loan.

Under terms of the above transaction, minimum credit ratings must be maintained by the bank issuing the letter of ~~credit issuing bank. An~~credit. If not, an “event of default” is deemed to have occurred under the debt instrument governing the Note Payable unless actions are taken to cure such default within 60 days from the date such credit rating falls below the specified minimum. Potential remedial actions include: (i) amending the terms of the applicable debt instrument; (ii) a replacement of the letter of credit with an appropriately rated institution; or (iii) repaying the Note Payable.

The following schedule sets forth the maturity of our long-term debt during the indicated year.


In thousands

2011	$	—
2012		—
2013		36,695
2014		—
2015		—
Thereafter		300,000

P. H. Glatfelter Company guarantees all debt obligations of ~~all~~ its subsidiaries. All such obligations are recorded in these consolidated financial statements.

As of ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, we had ~~$6.7~~$5.4 million ~~and $5.7 million, respectively,~~ of letters of credit issued to us by certain financial institutions. Such letters of credit reduce amounts available under our revolving credit facility. The letters of credit ~~outstanding as of September 30, 2010,~~ primarily

provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

~~13.~~

~~ASSET RETIREMENT OBLIGATION~~

12. ASSET RETIREMENT OBLIGATION

During 2008, we recorded $11.5 million ~~net present~~representing the estimated fair value of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, the lagoons were used to dispose of residual waste material. Closure of the lagoons will be accomplished by filling the lagoons, and installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to anthe upward revision in ~~the fourth quarter of~~ 2009, was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being ~~depreciated~~amortized as a charge to operations on the straight-line basis ~~in relation to~~over the expected closure period. Following is a summary of activity recorded during the first ~~nine months~~quarters of ~~2010~~2011 and ~~2009:~~2010:


In thousands	2010			2009			2011			2010

Balance at January 1,	$	11,292		$	11,606
Balance at January 1							$	9,717		$	11,293
Accretion		457			472			132			155
Payments		(1,008	)		(1,697	)		(149	)		(394	)

Balance at September 30,	$	10,741		$	10,381
Balance at March 31							$	9,700		$	11,054

Of the total liability at ~~September 30, 2010,~~March 31, 2011, $1.5 million is recorded in the accompanying consolidated balance sheet, under the caption “Other current liabilities” and ~~$9.2~~$8.2 million is recorded under the caption “Other long-term liabilities.”

net of unamortized original issue discount. ~~This fixed rate debt is~~These bonds are publicly registered, but is thinly ~~traded, and therefore, market prices are not readily available.~~traded. Accordingly, the values set forth above are based on debt instruments with similar ~~characteristics, or Level 2.~~characteristics. The fair value of the remaining debt ~~instruments~~instrument was estimated using a discounted cash flow ~~models~~model based on ~~interest rates obtained from readily available,~~ independent ~~sources, or Level 3.~~sources.

As part of our overall risk management practices, we enter into foreign exchange forward contracts primarily designed to mitigate the impact that changes in currency exchange rates have on intercompany financing ~~transactions. All such~~transactions and to hedge exposure to certain foreign currency denominated receivables and payables. None of these contracts are ~~not~~ designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contract and in the offsetting underlying intercompany transactions are reflected in the accompanying statement of operations under the caption “Other –— net.” For the three months ended March 31, 2011, our results of operations included a $4.3 million net loss from forward foreign currency exchange contracts. This activity was substantially all offset by adjustments to translate the underlying intercompany financing transactions.

The fair values of the foreign exchange forward contracts are considered to be Level ~~2 and are recorded in~~2. The following table sets forth the ~~accompanying consolidated balance sheet under the caption “Prepaid and other current assets” and “Other current liabilities.”~~

Asnotional values of ~~September 30, 2010, we had the following~~ outstanding foreign exchange forward contracts ~~all~~together with the unrealized fair value as of ~~which have original maturities of one month~~March 31, 2011 and ~~mature on October 29,~~December 31, 2010:


~~In millions~~	~~Notional~~

~~Sell euro for US dollar~~	€	~~62.0~~
~~Buy euro for US dollar~~	€	~~1.1~~
~~Buy euro for Bristish pound~~	€	~~4.5~~
~~Sell GBP for US dollar~~	£	~~2.3~~
~~Sell Canadian dollar for US dollar~~	C$	~~6.0~~
~~Sell Philippine peso for US dollar~~	~~PHP~~	~~247.0~~


	Notional					Balance
	Amount		Fair Value			Sheet
March 31, 2011	(millions)		(thousands)			Location

Sell euro for US$	€	50.0	$	(568.0	)	Other current liabilities
Buy euro for British pound	€	2.0	$	2.0		Other current assets
Sell Philippine peso for US$	PHP247.0			(24.0	)	Other current liabilities


	Notional Amount		Fair Value			Balance Sheet
December 31, 2010	(millions)		(thousands)			Location

Sell euro for US$	€	57.0	$	(563.0	)	Other current liabilities
Buy euro for British pound	€	3.0		(14.0	)	Other current liabilities
Sell Philippine peso for US$	PHP247.0			(4.0	)	Other current liabilities

~~The net fair value~~�� Each of the contracts set forth above have a maturity of one month from the date the respective contract was entered into.

We are exposed to credit risk related to this activity arising in the event of the inability of a ~~liability~~counterparty to meet its obligations to us under the terms of ~~$0.9 million at September 30, 2010.~~these contracts. This exposure is generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligation to them. Our policy is to enter into such financial instruments with financial institutions which meet certain minimum debt ratings.

~~15.~~

~~COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS~~

14. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River — Neenah, Wisconsin

BackgroundWe have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River and in the Bay of Green Bay Wisconsin (“Site”). As part of ~~the~~our 1979 acquisition of the Bergstrom Paper Company, we acquired a facility located at the Site (the “Neenah Facility”). ~~In part, the~~The Neenah Facility used wastepaper as a source of fiber. ~~At no time did the Neenah Facility utilize PCBs in the pulp and paper making process, but discharges~~Discharges to the lower

Fox River from the Neenah Facility ~~which~~that may have contained PCBs from wastepaper may have occurred from 1954 to the late 1970s. ~~Any~~We believe that any PCBs

GLATFELTER

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that ~~our~~the Neenah Facility may have discharged into the lower Fox River resulted from the presence of PCBs in NCR^®-brand carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the Neenah Facility in June 2006.

The United States, the State of Wisconsin and various state and federal governmental agencies (collectively, the “Governments”), as well as ~~private parties,~~other entities (including local Native American tribes), have found PCBs in sediments in the bed of the Fox River, apparently from a number of sources at municipal and industrial facilities along the upstream and downstream portions of the Site. The Governments have identified manufacturing and recycling of NCR^®-brand carbonless copy paper as the principal source of that contamination.

The United States Environmental Protection Agency (“EPA”) has divided the lower Fox River and the Bay of Green Bay site into five “operable units” ~~numbered from~~(the “OUs”), including the most upstream (“OU1”) toand four downstream reaches of the ~~most downstream~~river and bay (“~~OU5”~~OU2-5”). OU1 ~~is the reach~~extends from primarily Lake Winnebago to the dam at Appleton, and is comprised of Little Lake Butte des Morts. ~~Our~~The Neenah Facility discharged its wastewater into OU1. OU2 extends from the dam at Appleton to the dam at Little Rapids, OU3 from the dam at Little Rapids to the dam at De Pere, OU4 from the dam at De Pere to the mouth of the river, and OU5 from the mouth into the lower portion of Green Bay. The river extends 39 miles from the upstream end of OU1 to the downstream end of OU4.

Our liabilities, if any, for this contamination primarily arise under the federal Comprehensive Environmental, Response, Compensation and Liability Act (“CERCLA” or “Superfund”)~~. The~~, pursuant to which the Governments have sought to recover “response actions” or “response costs,” which are the costs of studying and cleaning up ~~contamination, from various “responsible parties.” In addition, various~~contamination. Other agencies and natural resource trustee agencies of(collectively, the ~~United States, the States of Wisconsin and Michigan, and several Indian Tribes (the “Natural Resources Trustees” or~~ “Trustees”) have sought to recover natural resource damages (“NRDs”), including natural resource damage assessment costs. ~~Parties~~

We are one of eight entities that have incurred response costs or NRDs either voluntarily or in response to the governments’ and Trustees’ demands may have an opportunity to seek contribution or other recovery of some or all of those costs from other parties who are jointly and severally responsible under Superfund for those costs. Therefore, as we incur costs, we also acquire a claim against other parties who may not have paid their equitable share of those costs. As others incur costs, they acquire a claim against us to the extentbeen formally notified that they ~~claim that we have not paid our equitable share of the total. Any party that resolves its liability to the United States or a~~

~~GLATFELTER~~

~~-13-~~

~~state in a judicially or administratively approved settlement agreement obtains protection from contribution claims for matters addressed in the settlement.~~

~~For these reasons, all of the parties who~~ are potentially responsible parties (“PRPs”) under CERCLA for response costs or NRDs have exposure to liability for: (a) the cost of past response actions taken by anyone else, (b) the cost of past NRD payments or restoration projects incurred by anyone else, (c) the cost of response actions to be taken in the future, and (d) NRDs. ~~All of this exposure is subject to substantial defenses,~~Others, including for example, that the PRP is not liable or not jointly and severally liable for any particular cost or damage, that the cost or damage is not recoverable under CERCLA or any other law, or that the recovery is barred by the passage of time. In addition, a party that has incurred or committed to incur costs or has paid NRDs may be able to claim credit for that cost or payment in any equitable allocation of response costs or NRDs in any action for reallocation of costs.

~~As is discussed more fully below in this Note 15, the current state of our exposure to liability for contamination at the Site is as follows:~~

~~(a) EPA has ordered us and other parties, including Appleton Papers Inc. (“API”) and NCR Corporation (“NCR”) to implement the remedy in OU2-5;~~

(b) a federal district court has ruled that neither API nor NCR may recover in contribution from either us or any other of the paper recyclers ordered by EPA to clean up the Site any costs of response or any NRDs that either of them incur or pay in connection with the Site; NCR and API have stated their intention to appeal this ruling;

(c) we have completed the remedy in OU1 in conjunction with WTM I Company (“WTM I”) and with some financial contribution from Menasha Corporation (“Menasha”) and API/NCR; we have also made payments toward NRDs and other costs of response at the site;

(d) the same federal district court is currently considering whether we and WTM I have a right to recover those response costs and payments of NRDs described in subsection (c) above from NCR and API; and

~~(e)~~ the United States and the State of Wisconsin, ~~have commenced a lawsuit against us and eleven other parties in federal district court seeking to recover from each of the defendants, jointly and severally,~~may also be liable for some or all of the ~~governments’ past~~ costs of response, a declaration as to liability for all of the governments’ future costs of response, and compensation for natural resource damages, as well as injunctive relief to require remedial action with respect to Operable Units 2-5 as called for by the order referred to in subsection (a) above.

~~Cleanup Decisions.~~~~Our liability exposure depends importantly on the decisions made by EPA and the~~

Wisconsin Department of Natural Resources (“WDNR”) as to how the Site will be cleaned up and consequently the costs and timing of those response actions. The nature of the response actions has been highly controversial. EPA issued a record of decision (“ROD”) selecting response actions for OU1 and OU2 in December 2002. EPA issued a separate ROD selecting response actions for OU3, OU4, and OU5 in March 2004 and in June 2007.

EPA amended the RODs for OUs 2-5 in June 2007 to require less dredging and more capping and covering of sediments containing PCBs. The governments have concluded that these methods will result in a reduction in the costs forNRD at this ~~portion of the cleanup. Others disagree. Likewise, in June 2008, EPA also amended the ROD for OU1~~.Site.

The ~~governments’ lawsuit may allow for litigation over the selection of the remedy. If that issue were~~Governments have sought to ~~be litigated,~~recover response actions, response costs, and ~~if we were to be successful in modifying the remedy, our exposure could be reduced materially.~~NRDs from us through three principal enforcement actions.

~~NRD Assessment.~~~~The Natural Resources Trustees have engaged in work to assess NRDs at and arising from~~OU1 CD. On October 1, 2003, the ~~Site. The~~ United States and the State of Wisconsin allege in their lawsuit that various documents prepared by the Trustees taken together constitute a required NRD Assessment under the regulations. We disagree. The Trustees’ 2009 estimate of NRDs and associated costs ranges from $287 million to $423 million, some of which has already been satisfied. With specific respect to NRD claims, we and others contended that the Trustees’ claims are barred or otherwise defendable on a number of legal bases including that the applicable three year statute of limitations has expired.

~~Past Costs Demand.~~By letter dated January 15, 2009, EPA demanded that we and six other parties reimburse EPA for approximately $17.6 million in costs that EPA claims it incurred as necessary costs of response not subject to any other agreement in this matter. In response, we and the other parties which were contacted notified the EPA that the supporting documentation provided by EPA did not allow us fully to evaluate this demand and we requested that the EPA provide additional supporting information for the claimed costs. EPA has not yet responded to this request. The governments allege in their lawsuit that the commenced an action captionedUnited States has incurred more than $16.5 million in unreimbursed response costs for the Site and that the State of Wisconsin has incurred certain other, unspecified, unreimbursed responses costs. Accordingly we are unable to estimate reasonably our potential liability for these costs.

~~Work Under Agreements, Orders, and Decrees.~~~~As we mention above, our exposure to liability depends on the amount of work done, costs incurred, and damages~~

~~GLATFELTER~~
~~-14-~~

~~paid both by~~v. P.H. Glatfelter Co.against us and ~~by others. The procedural context of any work done, costs incurred, and damages paid also impact our ultimate exposure.~~

Since 1991, the governments and various groups of potentially responsible parties, including us, have entered into a series of agreements, orders, and decrees under which we and others have performed work, incurred costs, or paid damagesWTM I Co. in connection with the Site. As a result, some parties have contributed or performed substantial work at the Site and at least one party, Fort Howard Corporation (whose successor is either the Fort James Operating Company or Georgia Pacific Corporation) has resolved its NRD liability at the Site.

~~Notably, in April 2004,~~ the United States District Court for the Eastern District of Wisconsin ~~entered~~and simultaneously lodged a consent decree (“OU1 ~~Consent Decree”~~CD”) in~~United States v. P.H. Glatfelter Co., No. 2:03-cv-949, under which~~that the court entered on April 12, 2004. Under that OU1 CD, and an amendment

dated August 2008, we and WTM I, ~~Corp. have been implementing the remedy in OU1. We have divided costs evenly, but have received~~with a ~~$7 million~~limited fixed contribution from Menasha Corp. and ~~a $10 million contribution that~~funds provided by the United States ~~taken~~ from ~~a separate settlement in~~~~United States v. Appleton Papers Inc.~~~~, No. 2:01-cv-816, that obligated NCR and Appleton Papers to contribute to certain NRD projects. In June 2008,~~an agreement with others, have implemented the ~~parties entered into an amendment to the OU1 Consent Decree (“Amended OU1 Consent Decree”). This amendment allowed for implementation of the amended~~ remedy for OU1. We have also resolved claims for all Governmental response costs in OU1 after July 2003 and ~~committed us~~made a payment on NRDs. That remedy is complete. We have continuing operation and ~~WTM I~~maintenance obligations that we expect to ~~implement that remedy without a cost limitation on that commitment. We~~fund from contributions we and WTM I have ~~substantially completed the amended remedy~~already made to an escrow account for OU1 ~~other than monitoring and maintenance.~~under the OU1 CD.

~~Further, in~~OU2-5 UAO. In November 2007, ~~EPA~~the United States Environmental Protection Agency (“EPA”) issued an administrative order for remedial action (“UAO”) to Appleton Papers Inc. (“API”), CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation, ~~us,~~Glatfelter, U.S. Paper Mills Corp., and WTM I Company (“WTM”) directing those respondents to implement the ~~amended~~ remedy in OU2-5. Shortly following issuance of the UAO, ~~Appleton Papers Inc.~~API and NCR ~~Corp.~~ commenced litigation against us and others, as described below. Accordingly, we have no vehicle for complying with the UAO’s overall requirements other than answering a judgment in the litigation, and we have so informed ~~EPA. However, in February 2009, the~~ EPA, ~~sent a demand~~but, to ~~each of the respondents on the UAO other than WTM I seeking payment of the government’s~~minimize disruptions, have paid certainde minimisamounts to EPA for oversight costs under the UAO.

Government Action. On October 14, 2010, the United States and the State of Wisconsin filed an action in the United States District Court for the Eastern District of Wisconsin captionedUnited States v. NCR Corp.(the “Government Action”) against 12 parties, including us. The Government Action seeks to recover from each of the defendants, jointly and severally, all of the governments’ past costs of response, which approximates $17 million to date, a declaration as to liability for all of the governments’ future costs of response, and compensation for natural resource damages, as well as a declaration as to liability for compliance with the UAO for OU2-5. On March 29, 2011, the ~~period~~United States filed a motion for a preliminary injunction against NCR and API to require NCR and API to implement work in 2011 at a rate described as “full-scale sediment remediation.”

We are engaged in litigation to allocate costs and NRDs among the parties responsible for this site.

Whiting Litigation. On January 7, 2008, NCR and API commenced litigation in the United States District Court for the Eastern District of Wisconsin captionedAppleton Papers Inc. v. George A. Whiting Paper Co., seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or API (the “Whiting Litigation”). At present, the case involves

GLATFELTER

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allocation claims among the two plaintiffs and 28 defendants including us. We and other defendants counterclaimed against NCR and API.

Claims against governments. The Whiting Litigation involves claims by certain parties against federal agencies who are responsible parties for this site. In the Government Action many defendants, including us, asserted counterclaims against the United States and the State of Wisconsin.

Settlements. Certain parties have resolved their liability to the United States affording them contribution protection. These settlements are embodied in consent decrees. Notably, we entered into the OU1 CD. Also, in a case captionedUnited States v. George A. Whiting Paper Co., the district court entered two consent decrees under which 13de minimisdefendants in the Whiting Litigation settled with the United States and Wisconsin. NCR and API appealed and await disposition by the Court of Appeals for the Seventh Circuit. Further, Georgia-Pacific Consumer Products LP, has entered into a consent decree resolving its liability for NRDs and a separate consent decree in the Government Action that resolves all of its liabilities except for the downstream portion of the OU4 remedy. Finally, the United States has lodged a consent decree that would resolve the liability of itself and two municipalities. We oppose entry of that consent decree.

Cleanup Decisions.The extent of our exposure depends, in large part, on the decisions made by EPA and the Wisconsin Department of Natural Resources (“WDNR”) as to how the Site will be cleaned up and the costs and timing of those response actions. The nature of the response actions has been highly controversial. Between 2002 and 2008, the EPA issued records of decision (“RODs”) regarding required remedial actions for the OUs. Some of those RODs have been amended. We contend that the remedy for OU2-5 is arbitrary and capricious. We and others may litigate that issue in the Government Action. If we were to be successful in modifying any existing selected remedy, our exposure could be reduced materially.

NRD Assessment.We are engaged in disputes as to (i) whether various documents prepared by the Trustees taken together constitute a sufficient NRD assessment under applicable regulations; and (ii) on a number of legal grounds, whether the Trustees may recover from ~~November 2007 through August 2008. In February 2009, we notified~~us on the specific NRD claims they have made.

Past Cost Demand.We are also disputing a demand by EPA that we ~~believed that its demand could prove distracting to litigation commenced by Appleton Papers~~ and ~~NCR against the~~six other ~~UAO~~

respondents. In order to remove this distraction, and in the spirit of cooperation, we stated that we would satisfy the EPA’s demand, an amount which was insignificant, in full. We paid this amount. Others have satisfied subsequent, insignificant demands byparties reimburse EPA for ~~oversight costs.~~approximately $17 million in costs that EPA claims it incurred.

Cost estimates.Estimates of the Site remediation change over time as we, or others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. On February 26, 2010, EPA issued an “explanation of Significant Differences”—a document explaining changes to a remedy (“ESD”), including changes in cost, that are significant but which do not require the issuance of a new Record of Decision. In that ESD, EPA estimated the cost for the OU 2-5 remedy to be $701 million. EPABased upon estimates ~~costs as a range, in this case from $491 million to $1.05 billion. This estimate is slightly different than, but not inconsistent with, an estimate of the total cost for remediation of the Site that~~made by the Governments ~~prepared for purposes of justifying a recent “~~~~de minimis~~~~” settlement with certain parties whose liability at the Site the United States~~ and the Governments believe to be insignificant. That settlement was approved by the federal court in Green Bay on December 16, 2009. In their brief in support of that settlement, the Governments estimated the total past costs incurred at the Site – including the OU1 project — to be $200 million. In addition, they estimated the cost of implementing the remedy set forth in the amended ROD for OU2-5 (the downstream portions of the Site) to total between $600 million and $700 million exclusive of amounts already spent. For purposes of the settlement, the Governments took the high end of that range and applied a 50% contingency to arrive at a cost estimate for future cleanup work of $1.05 billion. Based upon independent estimates commissioned by various potentially responsible parties, we have no reason to disagree with the Governments’ assertion that total past and future costs ~~to implement the amended remedy for OU2-5 are likely to fall between $700 million~~ and ~~$1.05 billion.~~NRDs at this site may exceed $1 billion and that $1.5 billion is a reasonable “outside estimate.”

NRDs.~~The Trustees have~~Of that amount, the Trustees’ assessment documents claimed that we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. ~~In their recently filed brief, they further~~They now claim that this range should be inflated to 2009 dollars and then certain unreimbursed past assessment costs should be added, so that the range of their claim would be $287 million to $423 million. We deny ~~(a)~~ liability for most of these NRDs ~~(b)~~and believe that even if anyone is liable, that we are not jointly and severally liable for the full ~~amount; and (c)~~amount. Moreover, we believe that the Trustees ~~can~~may not legally pursue this claim at this late date, as the limitations period for NRD claims is three years from discovery.

~~Allocation.~~~~Since 1991, various potentially responsible parties have, without success, attempted to~~

~~GLATFELTER~~

~~-15-~~

~~agree on a binding, final, allocation of costs~~Allocation and ~~damages among themselves. All costs that they have incurred to date have been incurred individually, or under interim, nonbinding allocations. However, the consent decree in~~~~United States v. P. H. Glatfelter Co.~~affords us and WTM I contribution protection for claims seeking to reallocate costs of implementing the OU1 remedy, and Fort James Operating Co. (now Georgia-Pacific) has certain rights under its consent decree. Otherwise, the parties have not litigated their internal allocation with us except as described below.

~~NCR and Appleton Papers Inc. commenced litigation in the United States District Court for the Eastern District of Wisconsin captioned~~~~Appleton Papers Inc. v. George A. Whiting Paper Co.~~, No. 2:08-cv-16, seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or Appleton Papers (the “Whiting Litigation”). They have to date joined a number of defendants, dismissed some of those, filed a parallel action, and consolidated the two cases. At present, the case involves allocation claims among the two plaintiffs and 28 defendants:Divisibility.us, George A. Whiting Paper Co., Menasha Corporation, Green Bay Packaging Inc., International Paper Company, Leicht Transfer & Storage Company, Neenah Foundry Company, Newpage Wisconsin System Inc., The Procter & Gamble Paper Products Company, Wisconsin Public Service Corp., the Cities of Appleton, De Pere, and Green Bay, Brown County, Green Bay Metropolitan Sewerage District, Heart of the Valley Metropolitan Sewerage District, Neenah-Menasha Sewerage Commission, WTM I Company, U.S. Paper Mills Corporation, Georgia-Pacific Consumer Products LP, Georgia-Pacific LLC, Fort James Operating Company, CBC Coating Company, Inc., Fort James Corporation, Kimberly-Clark Corporation, LaFarge North America Inc., Union Pacific Railroad Company, and the United States Army Corps of Engineers. As the result of certain third-party claims, federal agencies other than the Corps of Engineers are also involved in this allocation.

On December 16, 2009, the Court granted motions for summary judgment in our favor on the contribution claims brought by NCR and Appleton Papers Inc. in the Whiting litigation. The Court held that neither NCR nor Appleton Papers may seek contribution from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability of NCR or Appleton Papers to us for costs we have incurred, or our liability to the governments or Trustees. NCR and Appleton Papers have stated their intention to appeal but an appeal is not yet timely because the Court has not entered a final judgment.

~~As described above, we have counterclaims against NCR and Appleton Papers Inc. to recover the costs we have incurred and may later incur and the damages we~~

have paid and may later pay in connection with the Fox River site. Other defendants have similar claims. On January 20, 2010, the Court issued an order inviting submissions from the parties as to whether the counterclaims of the defendants, as well as certain additional claims, could be resolved without a trial within approximately six months. On April 3, 2010, we and others, including NCR and Appleton Papers Inc., filed separate motions for summary judgment on the counterclaims of the defendants. In the aggregate, the defendants’ motions seek a declaration that NCR and Appleton Papers, Inc. are liable to them for any future costs defendants may come to pay and seek recovery of just less than $210 million in past costs, plus interest on some of the recovery. Our summary judgment motion sought recovery of $58.6 million in past costs and the declaration. The Court has not yet ruled on any of the separate motions for summary judgment on the counterclaims of the defendants.

~~As noted above, on December 16, 2009, the Court approved a~~~~de minimis~~party consent decree (“Consent Decree”) settlement among the United States, the State of Wisconsin, and eleven defendants resolving those defendants’ liability for this site. The eleven settling defendants are: George A. Whiting Paper Co.; Green Bay Metropolitan Sewerage District; Green Bay Packaging, Inc.; Heart of the Valley Metropolitan Sewerage District; International Paper Co.; LaFarge North America Inc.; Leicht Transfer and Storage Co.; Neenah Foundry Co.; Procter & Gamble Paper Products Co.; Union Pacific Railroad Co.; and Wisconsin Public Service Corp. (collectively, the “Eleven Settling Defendants”). The Consent Decree reflects the conclusion by the United States and the State of Wisconsin that each of the Eleven Settling Defendants qualifies for treatment as a~~de minimis~~party under CERCLA. The Consent Decree requires the Settling Defendants to make a collective payment of $1,875,000. Those Eleven Settling Defendants have moved for judgment in the Whiting Litigation based upon the protections in the Consent Decree. In addition, the Governments on September 25, 2009, lodged a separate consent decree in the same case that would, if entered, resolve the liabilities of the City of De Pere. Under that consent decree, the City of De Pere would pay $210,000 to resolve its liability at the Site. That Consent Decree has since been approved and entered. API and NCR have appealed those two Consent Decrees to the Court of Appeals for the Seventh Circuit at Docket No. 10-2480.

We contend that we are not jointly and severally liable for costs or damages arising from the presence of PCBs downstream of OU1. In addition, we contend that NCR or other sources of NCR^®-brand carbonless copy paper that our Neenah Mill recycled bear most, if not all, of the

~~GLATFELTER~~

~~-16-~~

responsibility for costs and damages arising from the presence of PCBs in ~~OU1.~~OU1 and downstream.

~~Other Litigation.~~On ~~October 14, 2010,~~December 16, 2009, the ~~United States~~court granted motions for summary judgment in our favor in the Whiting Litigation holding that neither NCR nor API may seek contribution from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability of NCR or API to us for costs we have incurred, or our liability to the Governments or Trustees. NCR and API have stated their intention to appeal, but an appeal is not yet timely because the court has not entered a final judgment.

We also filed counterclaims against NCR and API to recover the costs we have incurred and may later incur and the ~~State~~damages we have paid and may later pay in connection with the Site. Other defendants have similar claims. On February 28, 2011, the district court granted our summary judgment motions on those counterclaims in part and denied them in part. The court granted a declaration that NCR and API are liable to us (and to others) in contribution for 100% of ~~Wisconsin filed an action in the United States District Court for the Eastern District of Wisconsin captioned~~~~United States v. NCR Corp.~~, No. 1:10-cv-910-WCG (the “Government Action”), against twelve parties, including us. The Government Action seeks to recover from each of the defendants, jointly and severally, all of the governments’ pastany costs of response ~~a declaration~~(that is, clean up) that we may be required to pay for work in OU2-5 in the future. The court requires further

GLATFELTER

-13-

proceedings to decide whether or to what extent NCR and API owe contribution to us and others for costs that we and others incurred in the past and costs that we and others incurred in connection with OU1. The parties disagree as to ~~liability for all of~~ the ~~governments’ future costs of response, and compensation for natural resource damages, as well as injunctive relief to require remedial action~~court’s ruling with respect to ~~Operable Units 2-5. Although we have not filed~~ our ~~answer~~claim that NCR and API owe contribution to ~~the Government Action and are in the process of reviewing the Government Action, we continue to believe~~us (and others) for NRDs or natural resource damage assessment costs that we have ~~substantial defenses~~paid or may be required to ~~the claims included~~pay in the ~~Government Action, as well as claims for contribution and counterclaims against other parties including the United States.~~

Simultaneously with their filing of the Government Action, the United States and Wisconsin provided notice of a proposed settlement of their claims against one of the defendants, Georgia-Pacific Consumer Products LP. The terms of this proposed settlement were set forth in a proposed consent decree. The United States will not move for entry of the consent decree until it has published the proposed consent decree and received public comments on the proposed consent decree. If the United States were to move for entry of the consent decree and werefuture. On April 12, 2011, the court ~~to enter~~set the ~~decree as a judgment, that settlement would limit~~remaining issues on our pending counterclaims under the ~~Company’s ability, or any other party’s ability, to seek contribution from Georgia-Pacific in this matter. The proposed consent decree calls~~Superfund statute for payment of $6 million plus interest to the Wisconsin Department of Natural Resources and $1 million plus interest to the EPA’s Hazardous Substance Response Superfund. Payments made by Georgia-Pacific under that consent decree should offset the governments’ recoveries against any other party dollar-for-dollar.trial beginning February 21, 2012.

Reserves for the ~~Fox River~~ Site.As of ~~September 30, 2010,~~March 31, 2011, our reserve for our claimed liability at the ~~Fox River,~~Site, including our remediation and ongoing monitoring obligations at OU1, our claimed liability for the remediation of ~~OU2-5,~~the rest of the Site, our claimed liability for NRDs associated with PCB contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled ~~$17.0~~$16.9 million. ~~No additional amounts were accrued during 2010 or 2009.~~ Of our total reserve for the Fox River, ~~$0.6~~$0.3 million is recorded in the accompanying consolidated balance sheets under the caption “Environmental liabilities” and the ~~remaining~~remainder is recorded under the caption “Other long term liabilities.”

~~Under~~Although we believe that amounts already funded by us and WTM to implement the OU1 ~~Consent Decree which was signed in 2004, we contributed $27.0 million to past~~remedy are adequate and ~~future costs and NRDs. Since the initial funding, we contributed an additional total of $15.5 million pursuant to various supplements or amendments to the OU1 Consent Decree. No~~no payments ~~were~~have been required ~~to be made~~ since January 2009. WTM I has contributed parallel amounts. These funds were placed into an escrow account from which we and WTM I pay for work on the project. As required by the Amended Consent Decree, in a quarterly report submitted to EPA in November 2009, we and WTM I concluded that the amounts in the escrow account would be sufficient to pay for the estimated cost of the work at OU1, including operation, maintenance, and other post-construction expenses. However, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in ~~Richmond. There~~Richmond; accordingly, there can be no assurance ~~should additional amounts be required to complete the project~~ that WTM I will be able to fulfill its obligation to pay half ~~the~~of any additional ~~cost.~~costs, if required.

We believe that we have strong defenses to liability for further remediation downstream of ~~OU2-5~~OU1, including the existence of ample data that indicate that PCBs did not leave OU1 in concentrations that could have caused or contributed to the need for additional cleanup ~~in OU2-5.~~downstream. Others, including the EPA and other PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform the ~~OU2-5~~additional remedial work, and filed the Government Action seeking, in part, the same relief. NCR and ~~Appleton Papers~~API commenced the Whiting Litigation and joined us and others as defendants, but, ~~did~~to this point, have not ~~prevail. Additional claims are likely to be filed in the litigation associated with the remediation of the Site.~~prevailed.

Even if we are not successful in establishing that we ~~are not liable for the~~have no further remediation ~~of OU2-5,~~liability, we do not believe that we would be allocated a significant percentage share of liability in any equitable allocation of the remediation costs and ~~other potential damages associated with OU2–5.~~natural resource damages. The accompanying consolidated financial statements do not include reserves for defense costs for the Whiting Litigation, the Government Action, or any future defense costs related to our involvement at the ~~Fox River~~Site, which could be significant.

In setting our reserve for the ~~Fox River,~~Site, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation, and assumed that we will not bear the entire cost of remediation ~~and~~or damages to the exclusion of other known PRPs at the Site, who are also potentially jointly and severally liable. The existence and ability of other PRPs to participate has also been taken into account in setting our reserve, and is generally based on our evaluation of recent publicly available financial information on ~~each PRP~~certain of the PRPs and

~~GLATFELTER~~

~~-17-~~

any known insurance, indemnity or cost sharing agreements between PRPs and third parties. In addition, our assessment is based upon the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs, if any, associated with the ~~Fox River site.~~Site.

~~Other than with respect to the Amended OU1 Consent Decree, the~~The amount and timing of future expenditures for environmental compliance, cleanup, remediation and personal injury, NRDs and property damage liabilities cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the response actions that may ultimately be required, the availability of remediation equipment, and landfill space, and the number and financial resources of any other PRPs.

Other Information.~~Based~~The Governments have published studies estimating the amount of PCBs discharged by each identified PRP’s facility to the lower Fox River and Green Bay. These reports estimate the Neenah Facility’s share of the mass of PCBs discharged to be as high as 27%. We do not believe the discharge mass estimates used in ~~part~~these studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the PCB mass estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facility’s volumetric contribution of PCB mass is significantly lower than the estimates set forth in these studies.

In any event, based upon the ~~Court’s~~court’s December 16, 2009, ~~ruling~~ and ~~the Court’s January 10, 2010 order~~February 28, 2011, rulings in the Whiting Litigation, as well as certain other procedural orders, we continue to believe that ~~a volumetric~~an allocation in proportion to mass of PCBs discharged would not constitute an equitable allocation of the potential liability for the contamination at the Fox River. We contend that other factors, such as the location of contamination, the location of discharge, and a party’s role in causing discharge, must be considered in order for the allocation to be equitable.

The Wisconsin DNR and FWS have each published studies, the latter in draft form, estimating the amount of PCBs discharged by each identified PRP’s facility to the lower Fox River and the Bay of Green Bay. These reports estimate the Neenah Facility’s share of the volumetric discharge to be as high as 27%. We do not believe the volumetric estimates used in these studies are accurate because (a) the studies themselves disclose that they are not accurate and (b) the volumetric estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facility’s volumetric contribution is significantly lower than the estimates set forth in these studies.GLATFELTER

-14-

We previously entered into interim cost-sharing agreements with ~~four~~six of the other PRPs, which provided for those PRPs to share certain costs relating to scientific studies of PCBs discharged at the Site (“Interim Cost Sharing Agreements”). These Interim Cost Sharing Agreements do not establish the final allocation of remediation costs incurred at the Site. Based upon our evaluation of the Court’s December 16, 2009, ~~ruling~~and February 28, 2011 rulings in the Whiting Litigation as well as the volume, nature and location of the various discharges of PCBs at the Site and the relationship of those discharges to identified

contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.

Range of Reasonably Possible Outcomes.Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to official documents such as RODs, discussions with the United States and other PRPs, as well as legal counsel and engineering consultants. Based on our analysis of the current RODs and cost estimates for work to be performed at the Site, we believe that it is reasonably possible that our costs associated with the Fox River matter may exceed our cost estimates and the aggregate amounts accrued for the Fox River matter by amounts that are insignificant or that could range up to $265 million over aan undeterminable period ~~that is currently undeterminable but~~ that could range beyond 15 years. We believe that the likelihood of an outcome in the upper end of the monetary range is significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. The two

summary ~~judgment~~judgments in our favor in theWhiting Litigation, if sustained on appeal, ~~suggests~~suggest that outcomes in the upper end of the monetary range have become somewhat less probable, while increases in cost estimates for some of the work may ~~militate~~make an outcome in the ~~opposite direction.~~upper end of the range more likely.

Summary.Our current assessment is that we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our ~~loan~~debt covenants. Moreover, there can be no assurance that our reserves will be adequate to provide for future obligations related to this matter, that our share of costs and/or damages will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. ~~If we are not successful in obtaining acknowledgment that the remedial work at OU1 has been substantially completed and/or should~~Should a court grant the United States or the State of Wisconsin relief which requires us either to perform directly or to contribute significant amounts towards remedial action ~~at Operable Units 2-5~~downstream of OU1 or to natural resource damages, those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

GLATFELTER

~~-18-~~-15-

~~16.~~15. SEGMENT INFORMATION

The following table sets forth financial and other information by business unit for the ~~periods~~period indicated:


	Three months ended September 30
Three months ended March 31																									Specialty				Composite				Advanced Airlaid				Other and
In millions	Specialty Papers				Composite Fibers				Advanced Airlaid Materials				Other and Unallocated						Total						Papers				Fibers				Materials				Unallocated						Total
	2010		2009		2010		2009		2010		2009		2010			2009			2010			2009			2011		2010		2011		2010		2011		2010		2011			2010			2011			2010

Net sales	$	217.3	$	211.6	$	103.7	$	100.7	$	58.0	$	—	$	—		$	—		$	379.1		$	312.4		$	220.5	$	207.7	$	115.2	$	101.5	$	61.1	$	28.1	$	—		$	—		$	396.8		$	337.3
Energy and related sales, net		3.3		2.1		—		—		—		—		—			—			3.3			2.1			3.0		3.6		—		—		—		—		—			—			3.0			3.6

Total revenue		220.6		213.8		103.7		100.7		58.0		—		—			—			382.4			314.5			223.4		211.3		115.2		101.5		61.1		28.1		—			—			399.8			340.9
Cost of products sold		184.3		178.1		85.6		85.7		54.9		—		1.8			(31.8	)		326.7			232.0			187.3		181.7		93.0		86.1		56.7		26.9		2.6			2.0			339.6			296.7

Gross profit		36.3		35.7		18.2		15.0		3.1		—		(1.8	)		31.8			55.7			82.5			36.1		29.6		22.2		15.4		4.4		1.2		(2.6	)		(2.0	)		60.2			44.2
SG&A		13.4		14.9		8.5		9.2		1.9		—		4.1			5.3			27.8			29.3			13.9		13.7		9.8		9.1		2.7		1.0		5.4			10.9			31.8			34.7
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		—		—		(0.2	)		—			(0.2	)		—
Gains on dispositions of plant, equipment and timberlands, net																										—		—		—		—		—		—		(3.2	)		—			(3.2	)		—

Total operating income (loss)		22.9		20.8		9.7		5.8		1.2		—		(5.7	)		26.5			28.1			53.2			22.2		15.9		12.4		6.3		1.7		0.2		(4.8	)		(12.9	)		31.6			9.5
Non-operating income (expense)		—		—		—		—		—		—		(6.6	)		(4.0	)		(6.6	)		(4.0	)
Other non-operating income (expense)																										—		—		—		—		—		—		(6.2	)		(9.4	)		(6.2	)		(9.4	)

Income (loss) before income taxes	$	22.9	$	20.8	$	9.7	$	5.8	$	1.2	$	—	$	(12.3	)	$	22.5		$	21.5		$	49.2		$	22.2	$	15.9	$	12.4	$	6.3	$	1.7	$	0.2	$	(11.0	)	$	(22.3	)	$	25.3		$	0.1


Supplementary Data
Net tons sold		195.4		199.9		22.8		20.2		22.1		—		—			—			240.3			220.1			198.8		193.2		22.9		21.3		21.5		11.1		—			—			243.2			225.6
Depreciation, depletion and amortization	$	8.9	$	10.6	$	5.7	$	6.1	$	2.0	$	—	$	—		$	—		$	16.6		$	16.8		$	8.7	$	8.6	$	6.1	$	6.1	$	2.1	$	1.1	$	—		$	—		$	16.9		$	15.8
Capital expenditures		5.1		2.1		2.7		3.2		—		—		—			—			7.8			5.2			3.9		3.0		3.8		1.5		0.4		1.6		—			—			8.1			6.1


	Nine months ended September 30
In millions	Specialty Papers				Composite Fibers				Advanced Airlaid Materials				Other and Unallocated						Total
	2010		2009		2010		2009		2010		2009		2010			2009			2010			2009

Net sales	$	633.8	$	595.6	$	307.2	$	287.3	$	138.1	$	—	$	—		$	—		$	1,079.2		$	882.9
Energy and related sales, net		8.8		6.2		—		—		—		—		—			—			8.8			6.2

Total revenue		642.6		601.8		307.2		287.3		138.1		—		—			—			1,088.0			889.1
Cost of products sold		560.9		528.2		255.8		246.1		130.4		—		5.6			(70.0	)		952.6			704.3

Gross profit		81.7		73.6		51.5		41.2		7.8		—		(5.6	)		70.0			135.4			184.8
SG&A		40.1		40.8		26.6		26.3		4.4		—		20.2			13.3			91.3			80.4
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		—		—		(0.3	)		(0.7	)		(0.3	)		(0.7	)

Total operating income (loss)		41.6		32.8		24.9		14.9		3.4		—		(25.4	)		57.4			44.4			105.1
Non-operating income (expense)		—		—		—		—		—		—		(22.3	)		(13.1	)		(22.3	)		(13.1	)

Income (loss) before income taxes	$	41.6	$	32.8	$	24.9	$	14.9	$	3.4	$	—	$	(47.8	)	$	44.3		$	22.1		$	92.0


Supplementary Data
Net tons sold		576.3		556.2		67.1		59.4		53.2		—		—			—			696.6			615.6
Depreciation, depletion and amortization	$	26.2	$	28.4	$	17.6	$	17.5	$	5.0	$	—	$	—		$	—		$	48.8		$	45.8
Capital expenditures		13.8		9.1		6.0		7.5		3.5		—		—			0.1			23.3			16.7

~~17.~~16. GUARANTOR FINANCIAL STATEMENTS

Our 7⅛% Senior Notes have been fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries: PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC.

The following presents our condensed consolidating statements of income and cash flow, and our condensed consolidating balance sheets. These financial statements reflect P. H. Glatfelter Company (the parent), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis. We have reclassified certain interest income amounts for the three months ended March 31, 2010 of $0.2 million in total from “Other — net”, to “Interest Expense, net”, to conform to the 2011 presentation. This reclassification had no effect on the reported amounts of Interest Income, Interest Expense, or Other — net for any period presented in our accompanying condensed consolidated statement of operations.

Condensed Consolidating Statement of Income for the
three months ended ~~September 30, 2010~~March 31, 2011


	Parent						Non			Adjustments/						Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated			Company			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	217,335		$	13,086		$	161,762		$	(13,086	)	$	379,097
Energy and related sales — net		3,312			—			—			—			3,312

Total revenues		220,647			13,086			161,762			(13,086	)		382,409
Costs of products sold		187,526			11,579			140,643			(13,079	)		326,669

Gross profit		33,121			1,507			21,119			(7	)		55,740
–Selling, general and administrative expenses		16,506			591			10,685			—			27,782
Gains on dispositions of plant, equipment and timberlands, net		(123	)		—			(27	)		—			(150	)

Operating income		16,738			916			10,461			(7	)		28,108
Non-operating income (expense)
Interest expense		(6,254	)		—			(311	)		—			(6,565	)
Interest income		(52	)		2,036			(1,282	)		(470	)		232
Other income (expense) — net		9,195			27			14			(9,487	)		(251	)

Total other income (expense)		2,889			2,063			(1,579	)		(9,957	)		(6,584	)

Income (loss) before income taxes		19,627			2,979			8,882			(9,964	)		21,524
Income tax provision (benefit)		(19,810	)		492			1,585			(180	)		(17,913	)

Net income	$	39,437		$	2,487		$	7,297		$	(9,784	)	$	39,437

Condensed Consolidating Statement of Income for the three months ended September 30, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	211,635		$	12,816		$	100,723		$	(12,816	)	$	312,358		$	220,453		$	12,832		$	176,318		$	(12,832	)	$	396,771
Energy and related sales — net		2,132			—			—			—			2,132			2,987			—			—			—			2,987

Total revenues		213,767			12,816			100,723			(12,816	)		314,490			223,440			12,832			176,318			(12,832	)		399,758
Costs of products sold		147,464			11,568			85,808			(12,815	)		232,025			191,299			11,471			149,766			(12,945	)		339,591

Gross profit		66,303			1,248			14,915			(1	)		82,465			32,141			1,361			26,552			113			60,167
Selling, general and administrative expenses		19,495			566			9,242			—			29,303			18,717			559			12,494			—			31,770
Gains on dispositions of plant, equipment and timberlands, net		(8	)		(1	)		—			—			(9	)		(14	)		(3,158	)		(3	)		—			(3,175	)

Operating income		46,816			683			5,673			(1	)		53,171			13,438			3,960			14,061			113			31,572
Non-operating income (expense)
Interest expense		(4,148	)		—			(380	)		—			(4,528	)
Interest income		1,230			1,115			(202	)		(1,825	)		318
Other non-operating income (expense)
Interest expense, net																	(3,329	)		1,881			(1,505	)		(3,300	)		(6,253	)
Other income (expense) — net		339			45			86			(266	)		204			10,862			86			(416	)		(10,525	)		7

Total other income (expense)		(2,579	)		1,160			(496	)		(2,091	)		(4,006	)
Total other non-operating income (expense)																	7,533			1,967			(1,921	)		(13,825	)		(6,246	)

Income (loss) before income taxes		44,237			1,843			5,177			(2,092	)		49,165			20,971			5,927			12,140			(13,712	)		25,326
Income tax provision (benefit)		(1,757	)		929			4,699			(700	)		3,171			3,545			2,456			3,093			(1,194	)		7,900

Net income (loss)	$	45,994		$	914		$	478		$	(1,392	)	$	45,994		$	17,426		$	3,471		$	9,047		$	(12,518	)	$	17,426

Condensed Consolidating Statement of Income for the
~~nine~~three months ended ~~September 30,~~March 31, 2010


	Parent						Non			Adjustments/
In thousand	Company			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	633,778		$	37,440		$	445,375		$	(37,440	)	$	1,079,153
Energy and related sales — net		8,834			—			—			—			8,834

Total revenues		642,612			37,440			445,375			(37,440	)		1,087,987
Costs of products sold		571,217			32,272			386,354			(37,272	)		952,571

Gross profit		71,395			5,168			59,021			(168	)		135,416
Selling, general and administrative expenses		56,088			1,759			33,452			—			91,299
Gains on dispositions of plant, equipment and timberlands, net		(123	)		(168	)		(27	)		—			(318	)

Operating income		15,430			3,577			25,596			(168	)		44,435
Non-operating income (expense)
Interest expense		(18,059	)		—			(986	)		—			(19,045	)
Interest income		(777	)		5,456			(3,339	)		(770	)		570
Other income (expense) — net		16,870			(1,290	)		3,225			(22,673	)		(3,868	)

Total other income (expense)		(1,966	)		4,166			(1,100	)		(23,443	)		(22,343	)

Income (loss) before income taxes		13,464			7,743			24,496			(23,611	)		22,092
Income tax provision (benefit)		(25,702	)		2,046			6,944			(362	)		(17,074	)

Net income (loss)	$	39,166		$	5,697		$	17,552		$	(23,249	)	$	39,166

Condensed Consolidating Statement of Income for the nine months ended September 30, 2009

	Parent						Non			Adjustments/						Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated			Company			Guarantors			Guarantors			Eliminations			Consolidated

Net sales	$	595,606		$	35,306		$	287,283		$	(35,306	)	$	882,889		$	207,703		$	12,604		$	129,572		$	(12,604	)	$	337,275
Energy and related sales — net		6,194			—			—			—			6,194			3,607			—			—			—			3,607

Total revenues		601,800			35,306			287,283			(35,306	)		889,083			211,310			12,604			129,572			(12,604	)		340,882
Costs of products sold		461,449			32,016			246,301			(35,463	)		704,303			185,628			10,409			113,092			(12,463	)		296,666

Gross profit		140,351			3,290			40,982			157			184,780			25,682			2,195			16,480			(141	)		44,216
Selling, general and administrative expenses		51,819			1,639			26,906			—			80,364			22,547			541			11,582			—			34,670
Gains on dispositions of plant, equipment and timberlands, net		20			(701	)		—			—			(681	)		—			—			—			—			—

Operating income		88,512			2,352			14,076			157			105,097			3,135			1,654			4,898			(141	)		9,546
Non-operating income (expense)
Interest expense		(12,867	)		(5	)		(1,926	)		—			(14,798	)
Interest income		745			4,023			(310	)		(2,875	)		1,583
Other non-operating income (expense)
Interest expense, net																	(5,504	)		1,491			(1,180	)		(300	)		(5,493	)
Other income (expense) — net		7,464			1,274			(92	)		(8,560	)		86			(725	)		(483	)		2,030			(4,805	)		(3,983	)

Total other income (expense)		(4,658	)		5,292			(2,328	)		(11,435	)		(13,129	)
Total other non-operating income (expense)																	(6,229	)		1,008			850			(5,105	)		(9,476	)

Income (loss) before income taxes		83,854			7,644			11,748			(11,278	)		91,968			(3,094	)		2,662			5,748			(5,246	)		70
Income tax provision (benefit)		6,452			3,169			5,979			(1,034	)		14,566			(2,720	)		1,165			2,172			(173	)		444

Net income (loss)	$	77,402		$	4,475		$	5,769		$	(10,244	)	$	77,402		$	(374	)	$	1,497		$	3,576		$	(5,073	)	$	(374	)

Condensed Consolidating Balance Sheet as of ~~September 30,~~March 31, 2011


	Parent				Non		Adjustments/
In thousands	Company		Guarantors		Guarantors		Eliminations			Consolidated

Assets
Current assets
Cash and cash equivalents	$	89,059	$	515	$	26,363	$	—		$	115,937
Other current assets		234,700		402,580		234,333		(448,671	)		422,942
Plant, equipment and timberlands — net		240,492		6,925		368,806		—			616,223
Other assets		794,493		173,628		104,150		(839,010	)		233,261

Total assets	$	1,358,744	$	583,648	$	733,652	$	(1,287,681	)	$	1,388,363


Liabilities and Shareholders’ Equity
Current liabilities	$	293,272	$	17,268	$	352,131	$	(444,892	)	$	217,779
Long-term debt		295,698		—		36,695		—			332,393
Deferred income taxes		70,575		19,039		43,908		(30,107	)		103,415
Other long-term liabilities		115,140		13,248		10,473		11,856			150,717

Total liabilities		774,685		49,555		443,207		(463,143	)		804,304
Shareholders’ equity		584,059		534,093		290,445		(824,538	)		584,059

Total liabilities and shareholders’ equity	$	1,358,744	$	583,648	$	733,652	$	(1,287,681	)	$	1,388,363

Condensed Consolidating Balance Sheet as of December 31, 2010


	Parent				Non		Adjustments/					Parent				Non		Adjustments/
In thousands	Company		Guarantors		Guarantors		Eliminations			Consolidated		Company		Guarantors		Guarantors		Eliminations			Consolidated

Assets
Current assets
Cash and cash equivalents	$	32,208	$	445	$	30,680	$	—		$	63,333	$	61,953	$	91	$	33,744	$	—		$	95,788
Other current assets		269,385		447,644		214,479		(511,781	)		419,727		230,957		380,986		203,048		(408,089	)		406,902
Plant, equipment and timberlands — net		244,396		6,952		372,435		—			623,783		244,157		7,161		356,836		16			608,170
Other assets		811,694		166,456		106,678		(858,936	)		225,892		773,254		167,877		103,250		(813,494	)		230,887

Total assets	$	1,357,683	$	621,497	$	724,272	$	(1,370,717	)	$	1,332,735	$	1,310,321	$	556,115	$	696,878	$	(1,221,567	)	$	1,341,747


Liabilities and Shareholders’ Equity
Current liabilities	$	330,107	$	42,077	$	360,681	$	(524,060	)	$	208,805	$	277,343	$	3,672	$	336,679	$	(404,548	)	$	213,146
Long-term debt		295,363		—		36,695		—			332,058		295,529		—		36,695		—			332,224
Deferred income taxes		71,123		13,811		44,668		(39,640	)		89,962		70,575		14,836		42,204		(32,697	)		94,918
Other long-term liabilities		123,763		13,663		13,031		14,126			164,583		114,432		13,210		9,999		11,376			149,017

Total liabilities		820,356		69,551		455,075		(549,574	)		795,408		757,879		31,718		425,577		(425,869	)		789,305
Shareholders’ equity		537,327		551,946		269,197		(821,143	)		537,327		552,442		524,397		271,301		(795,698	)		552,442

Total liabilities and shareholders’ equity	$	1,357,683	$	621,497	$	724,272	$	(1,370,717	)	$	1,332,735	$	1,310,321	$	556,115	$	696,878	$	(1,221,567	)	$	1,341,747

Condensed Consolidating Balance Sheet as of December 31, 2009

	Parent				Non		Adjustments/
In thousands	Company		Guarantors		Guarantors		Eliminations			Consolidated

Assets
Current assets
Cash and cash equivalents	$	76,970	$	985	$	57,465	$	—		$	135,420
Other current assets		275,490		260,834		148,090		(299,778	)		384,636
Plant, equipment and timberlands — net		255,886		6,921		207,825		—			470,632
Other assets		600,116		145,304		75,731		(621,545	)		199,606

Total assets	$	1,208,462	$	414,044	$	489,111	$	(921,323	)	$	1,190,294


Liabilities and Shareholders’ Equity
Current liabilities	$	301,908	$	1,357	$	179,273	$	(296,428	)	$	186,110
Long-term debt		200,241		—		36,695		—			236,936
Deferred income taxes		71,035		15,347		26,284		(15,998	)		96,668
Other long-term liabilities		124,574		13,531		9,654		12,117			159,876

Total liabilities		697,758		30,235		251,906		(300,309	)		679,590
Shareholders’ equity		510,704		383,809		237,205		(621,014	)		510,704

Total liabilities and shareholders’ equity	$	1,208,462	$	414,044	$	489,111	$	(921,323	)	$	1,190,294

Condensed Consolidating Statement of Cash Flows for
the ~~nine~~ three
months ended ~~September 30,~~March 31, 2011


	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided (used) by
Operating activities	$	29,437		$	1,691		$	(215	)	$	(3,300	)	$	27,613
Investing activities
Purchase of plant, equipment and timberlands		(3,879	)		—			(4,209	)		—			(8,088	)
Proceeds from disposal of plant, equipment and timberlands		14			3,373			18			—			3,405
Repayments from (advances of) intercompany loans, net		(2,366	)		(1,340	)					3,706

Total investing activities		(6,231	)		2,033			(4,191	)		3,706			(4,683	)
Financing activities
Net repayments of indebtedness		—			—			(107	)		—			(107	)
Payment of dividends to shareholders		(4,206	)		—			—			—			(4,206	)
(Repayments) borrowings of intercompany loans, net		8,100			—			(4,394	)		(3,706	)		—
Payment of intercompany dividends		—			(3,300	)		—			3,300			—
Proceeds from stock options exercised and other		6			—			—			—			6

Total financing activities		3,900			(3,300	)		(4,501	)		(406	)		(4,307	)
Effect of exchange rate on cash		—			—			1,526			—			1,526

Net increase (decrease) in cash		27,106			424			(7,381	)		—			20,149
Cash at the beginning of period		61,953			91			33,744			—			95,788

Cash at the end of period	$	89,059		$	515		$	26,363		$	—		$	115,937

Condensed Consolidating Statement of Cash Flows for the
three months ended March 31, 2010


	Parent						Non			Adjustments/						Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated			Company			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided (used) by
Operating activities	$	(67,569	)	$	135,481		$	56,238		$	(770	)	$	123,380		$	(167,159	)	$	142,045		$	45,784		$	(300	)	$	20,370
Investing activities
Purchase of plant, equipment and timberlands		(13,297	)		(518	)		(9,454	)		—			(23,269	)		(2,953	)		(17	)		(3,166	)		—			(6,136	)
Proceeds from disposal plant, equipment and timberlands		124			182			27			—			333
Acquisition of Concert Industries Corp., net of cash acquired																	—			—			(233,006	)		—			(233,006	)
Repayments from (advances of) intercompany loans, net		(8,049	)		(134,715	)		5,393			137,371			—			(2,139	)		(141,757	)		4,506			139,390			—
Acquisition of Concert Industries Corp., net of cash acquired		—			—			(229,080	)		—			(229,080	)

Total investing activities		(21,222	)		(135,051	)		(233,114	)		137,371			(252,016	)		(5,092	)		(141,774	)		(231,666	)		139,390			(239,142	)
Financing activities
Net (repayments of) proceeds from indebtedness		75,703			—			(2,979	)		—			72,724			116,027			—			1,105			—			117,132
Payment of dividends to shareholders		(12,556	)		—			—			—			(12,556	)		(4,165	)		—			—			—			(4,165	)
(Repayments) borrowings of intercompany loans, net		(19,265	)		(200	)		156,836			(137,371	)		—			(16,078	)		(200	)		155,668			(139,390	)		—
Proceeds from stock options and other		147			—			—			—			147
Payment of intercompany dividends		—			(770	)		—			770			—			—			(300	)		—			300			—

Total financing activities		44,029			(970	)		153,857			(136,601	)		60,315
Effect of exchange rate on cash		—			—			(3,766	)		—			(3,766	)

Net decrease in cash		(44,762	)		(540	)		(26,785	)		—			(72,087	)
Cash at the beginning of period		76,970			985			57,465			—			135,420

Cash at the end of period	$	32,208		$	445		$	30,680		$	—		$	63,333

Condensed Consolidating Statement of Cash Flows for the nine months ended September 30, 2009

	Parent						Non			Adjustments/
In thousands	Company			Guarantors			Guarantors			Eliminations			Consolidated

Net cash provided (used) by
Operating activities	$	67,340		$	5,990		$	49,059		$	(2,875	)	$	119,514
Investing activities
Purchase of plant, equipment and timberlands		(9,057	)		(138	)		(7,509	)		—			(16,704	)
Proceeds from disposal plant, equipment and timberlands		—			728			—			—			728
Proceeds from installment note receivable		—			—			37,850			—			37,850
Repayments from (advances of) intercompany loans, net		5,135			1,018			—			(6,153	)		—

Total investing activities		(3,922	)		1,608			30,341			(6,153	)		21,874
Financing activities
Net repayments of indebtedness		(13,623	)		—			(36,640	)		—			(50,263	)
Payment of dividends to shareholders		(12,433	)		—			—			—			(12,433	)
(Repayments) borrowings of intercompany loans, net		(1,018	)		(5,200	)		65			6,153			—
Payment of intercompany dividends		—			(2,875	)		—			2,875			—
Proceeds from stock options exercised and other																	107			—			—			—			107

Total financing activities		(27,074	)		(8,075	)		(36,575	)		9,028			(62,696	)		95,891			(500	)		156,773			(139,090	)		113,074
Effect of exchange rate on cash		—			—			5,314			—			5,314			—			—			(3,147	)		—			(3,147	)

Net increase (decrease) in cash		36,344			(477	)		48,139			—			84,006			(76,360	)		(229	)		(32,256	)		—			(108,845	)
Cash at the beginning of period		8,860			756			22,618			—			32,234			76,970			985			57,465			—			135,420

Cash at the end of period	$	45,204		$	279		$	70,757		$	—		$	116,240		$	610		$	756		$	25,209		$	—		$	26,575

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the information in the unaudited condensed consolidated financial statements and notes thereto included herein and Glatfelter’s Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2009~~2010 Annual Report on Form 10-K.

Forward-Looking StatementsThis Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as “anticipates”, “believes”, “expects”, “future”, “intends” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among others, ~~net sales, costs of products sold,~~non-cash pension expense, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:

i.		variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing;

ii.		changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber;

iii.		changes in energy-related costs and commodity raw materials with an energy component;

iv.		our ability to develop new, high value-added ~~Specialty Papers, Composite Fibers and Advanced Airlaid Material~~ products;

v.		the impact of exposure to volatile market-based pricing for sales of excess electricity;

vi.		the impact of competition, changes in industry production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases;

vii.		~~the impairment of financial institutions and any resulting impact on us, our customers or our vendors;~~

~~viii.~~		the gain or loss of significant customers and/or on-going viability of such customers;

~~ix.~~viii.		cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (“PCBs”) in the lower Fox River on which our former Neenah mill was located;

x.ix.		risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

~~xi.~~x.		geopolitical events, including war and terrorism;

xi.		possible disruptions in our business as a result of natural disasters in and around Japan;

xii.		disruptions in production and/or increased costs due to labor disputes;

xiii.		the impact of unfavorable outcomes of audits by various state, federal or international tax authorities;

xiv.		enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;

xv.		adverse results in litigation; and

xvi.		our ability to finance, consummate and integrate ~~current or future~~ acquisitions.

IntroductionWe manufacture, both domestically and internationally, a wide array of specialty papers and fiber-based engineered ~~products.~~materials. We manage our ~~business~~company along three business units: i) Specialty Papers with revenues earned from the sale of carbonless papers and forms, book publishing, envelope & converting, and engineered products; ii) Composite Fibers with revenue from the sale of food & beverage filtration papers, metallized papers, composite laminates used for decorative furniture and flooring applications, and technical specialties; and iii) Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence products, cleaning pads and wipes, food pads, napkins and tablecloths, and baby wipes.

~~Overview~~On February 12, 2010, we completed the acquisition of Concert Industries Corp. (“Concert”), a manufacturer of highly absorbent cellulose based airlaid non-woven materials with annual revenue in 2009 of $203 million. Our results of operations for the first nine months of 2010 include the results of Concert prospectively since the acquisition was completed.

	•		Specialty Paperswith revenues earned from the sale of carbonless papers and forms, book publishing, envelope & converting, and engineered products;

	•		Composite Fiberswith revenue from the sale of food & beverage filtration papers, metallized papers, composite laminates used for decorative furniture and flooring applications, and technical specialties; and

	•		Advanced Airlaid Materialswith revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence products, cleaning pads and wipes, food pads, napkins and tablecloths, and baby wipes.

GLATFELTER

~~-24-~~-20-

Our reported results of operations for the first nine months of 2010 when compared with the same period of 2009 are lower primarily due to the amount of tax-related credits recorded in each period associated with cellulosic or alternative fuel mixtures. For the first nine months of 2010 net income included $23.1 million benefit from cellulosic biofuel credits compared to $63.3 million alternative fuel mixture credits for the first nine months of 2009.

In addition, our 2010 year to date results include an aggregate of $10.4 million, after-tax, of acquisition and integration costs, together with a loss on forward foreign currency contracts that hedged the Canadian dollar purchase price, of the Concert acquisition. The loss on the hedged purchase price was $3.4 million, net of realized currency translation gains, and is presented under the caption “Other-net” in the accompanying condensed consolidated statements of income for the nine months ended September 30, 2010.

Operationally, our results were favorably affected by higher volumes shipped associated with improving demand in many of the markets served by our businesses and the inclusion of Concert. Higher average selling prices offset the adverse affect of rising input costs, particularly purchased pulp. Our results for the first nine months of 2009 were adversely impacted by market related downtime in both the Specialty Papers and Composite Fibers business units related to the weak economic environment. During 2010, demand for our products improved and, as a results, we did not incur market related downtime.

RESULTS OF OPERATIONS

~~Nine~~Three months ended ~~September 30, 2010~~March 31, 2011 versus the
~~Nine~~Three months ended ~~September 30, 2009~~March 31, 2010

OverviewNet income in the first quarter of 2011 totaled $17.4 million, or $0.38 per diluted share compared with a net loss of $0.4 million or $0.01 per diluted share for the first quarter of 2010. The results of operations for 2010 include, on an after-tax basis, $9.1 million of expenses directly related to the Concert Industries acquisition completed on February 12, 2010.

The results of operations from our businesses improved significantly in the quarter over quarter comparison. Operating income from our three business units increased, on a pre-tax basis, $13.9 million, or 62.0%, reflecting higher selling prices, stronger demand and efficiency gains. In addition, the 2011 first quarter includes a full quarter of Concert Industries (now operated as the Advanced Airlaid Materials business unit). The favorable operating conditions were partially offset by the adverse impact of higher input costs, primarily related to pulps and energy.

We also generated positive free cash flow (cash provided by operations less capital expenditures) in the quarter over quarter comparison. In the first quarter of 2011, free cash flow was $19.5 million compared with $14.2 million in the same quarter of 2010

The following table sets forth summarized results of operations:


	Nine months ended September 30				Three months ended March 31
In thousands, except per share	2010		2009		2011		2010

Net sales	$	1,079,153	$	882,889	$	396,771	$	337,275
Gross profit		135,416		184,780		60,167		44,216
Operating income		44,435		105,097		31,572		9,546
Net income		39,166		77,402
Earnings per share		0.85		1.69
Net income (loss)						17,426		(374	)
Earnings (loss) per share						0.38		(0.01	)

The consolidated results of operations for the ~~nine~~three months ended ~~September 30,~~March 31, 2011 and 2010 ~~and 2009~~ include the following significant items:


	After-tax			Diluted EPS			After-tax			Diluted EPS
In thousands, except per share	Gain (loss)						Gain (loss)

2011
Gains on sale of timberlands							$	1,718		$	0.04
Acquisition and integration costs								(275	)		(0.01	)
2010
Cellulosic biofuel/alternative fuel mixture credit	$	23,100		$	0.50
Acquisition and integration costs		(8,728	)		(0.18	)	$	(7,002	)	$	(0.15	)
Foreign currency hedge on acquisition price		(1,673	)		(0.04	)		(2,076	)		(0.05	)

2009
Cellulosic biofuel/alternative fuel mixture credit	$	63,308		$	1.38

Business UnitsResults of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area ~~services or are included in “Other and Unallocated” in the table above.~~services.

Management evaluates results of operations of the business units before ~~non-cash net~~ pension income or expense, alternative fuel mixture credits, charges related to the Fox River environmental reserves, acquisition and integration related costs, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption “Other and Unallocated.” This presentation is aligned with the management and operating structure of our company. It is also on this basis that ~~our~~the Company’s performance is evaluated internally and by ~~our~~the Company’s Board of Directors.

Sales and Costs of Products Sold


	Nine months ended									Three months ended
	September 30									March 31
In thousands	2010			2009			Change			2011			2010			Change

Net sales	$	1,079,153		$	882,889		$	196,264		$	396,771		$	337,275		$	59,496
Energy and related sales — net		8,834			6,194			2,640			2,987			3,607			(620	)

Total revenues		1,087,987			889,083			198,904			399,758			340,882			58,876
Costs of products sold		952,571			704,303	⁽¹⁾		248,268			339,591			296,666			42,925

Gross profit	$	135,416		$	184,780		$	(49,364	)		60,167		$	44,216		$	15,951

Gross profit as a percent of Net sales		12.5	%		20.9	%					15.2	%		13.1	%


~~(1)~~		~~Includes $73.8 million of alternative fuel mixture credits.~~

The following table sets forth the contribution to consolidated net sales by each business unit:


	Nine months ended						Three months ended
	September 30						March 31
Percent of Total	2010			2009			2011			2010

Business Unit
Specialty Papers		58.7	%		67.5	%		55.6	%		61.6	%
Composite Fibers		28.5			32.5			29.0			30.1
Advanced Airlaid Material		12.8			—
Advanced Airlaid Materials								15.4			8.3

Total		100.0	%		100.0	%		100.0	%		100.0	%

Net salesfor the first ~~nine months~~quarter of ~~2010~~2011 were ~~$1,079.2~~$396.8 million, a ~~22.2%~~17.6% increase compared with ~~$882.9 million for~~ the ~~same period~~first quarter of ~~2009,~~2010, reflecting ~~stronger business activity in the~~higher selling prices, improved demand and a full quarter of our ~~Specialty Papers and Composite Fibers business units and the inclusion of Concert, now operated and reported as~~ Advanced Airlaid Materials business unit. On an organic basis, net sales increased 8.7%, excluding changes in foreign currencies.

In the Specialty Papers business unit, 2011 first quarter net sales ~~for the first nine months of 2010~~ increased ~~$38.2~~$12.8 million ~~or 6.4%, to $633.8 million. The increase was primarily~~ due to ~~higher volumes shipped and~~ a ~~$15.3~~$10.5 million benefit from higher selling ~~prices.~~prices, together with a 2.9% increase in shipping volumes.

Specialty Papers’ 2011 first quarter operating ~~profit in~~income increased $6.3 million primarily reflecting the ~~first nine months~~benefits of ~~2010 improved by $8.8 million compared with the same period of 2009 primarily due to~~ higher selling prices, improved operating efficiencies of $2.4 million and a ~~3.6% increase in volumes shipped~~$1.6 million insurance recovery related to a third-quarter 2010 press roll failure. These factors more than offset a $7.2 million adverse impact from higher raw material and the lack of market related downtime. These favorable factors were partially offset by higher maintenance costs primarily associated with the annual mill outages and with unplanned production interruptions.energy costs.

We sell excess power generated by the Spring Grove, PA facility. ~~In addition, two of our facilities are registered generators of renewable energy credits (“RECs”).~~ The following table summarizes this activity for the first ~~nine months~~quarters of ~~2010~~2011 and ~~2009:~~2010:


In thousands	2010			2009			Change			2011			2010			Change

Energy sales	$	11,520		$	15,268		$	(3,748	)	$	2,892		$	4,604		$	(1,712	)
Costs to produce		(7,912	)		(9,074	)		1,162			(2,477	)		(2,612	)		135

Net		3,608			6,194			(2,586	)		415			1,992			(1,577	)
Renewable energy credits		5,226			—			5,226			2,572			1,614			958

Total	$	8,834		$	6,194		$	2,640		$	2,987		$	3,606		$	(619	)

Prior to March 31, 2010, all ~~energy~~such sales were made pursuant to a long-term contract that expired at the end of the first quarter 2010. We continue to sell power but at market rates, the forward pricing for which is ~~approximately 35%~~significantly below the expired contract rate. ~~We expect increased volatility and lower overall profitability.~~

~~RECs~~Renewable energy credits (“RECs”) represent sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste. We sell RECs into an emerging and somewhat illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of management’s control. Therefore, we may not be able to generate consistent additional sales of RECs in future periods.

In Composite Fibers, 2011 first quarter net sales ~~for the first nine months of 2010~~ were ~~$307.2~~$115.2 million, an increase of ~~$20.0~~$13.7 million, or ~~6.9%~~13.5%, from the same ~~period of 2009.~~quarter a year ago reflecting a $3.9 million benefit from higher selling prices and a 7.6% increase in shipping volumes. The improvement in Composite Fibers’ net sales reflects strengthening demand in ~~each~~most of its product ~~lines as volumes shipped increased 12.9%. On a constant currency basis, average selling prices were lower by $2.0 million, and the~~lines. The translation of foreign currencies unfavorably ~~affected~~impacted net sales by ~~approximately $8.3~~$0.3 million.

GLATFELTER

-22-

~~Lower raw material~~Composite Fibers’ first-quarter 2011 operating income increased by $6.1 million, nearly doubling its results from a year ago. The improvement was driven by the $3.9 million impact from higher selling prices as well as $6.4 million in improvement from record operating rates, efficiency gains related to continuous improvement initiatives and ~~energy~~the impact of increased shipping volumes. The combination of these factors more than offset the $3.6 million negative impact of higher input costs, primarily ~~natural gas, favorably affected this business unit’s profitability by $4.0 million. In addition, improving market conditions~~related to woodpulp and business development increased production volumes eliminating market-driven down time. On a net basis, Composite Fibers’ operating profit increased $10.0 million, or 67.6%, in the period-to-period comparison.synthetic fibers.

~~Results for~~In Advanced Airlaid Materials, ~~are~~2011 first quarter net sales were $61.1 million, an increase of $33.0 million, largely due to including a full quarter’s results in 2011. The results for the first quarter of 2010 were included prospectively from the February 12, 2010 acquisition date. Higher selling prices benefited the ~~date~~comparison by $4.6 million. Operating income increased $1.5 million primarily due to higher selling prices and volumes shipped, together with the benefit in the comparison of ~~the Concert acquisition. This business unit’s results were unfavorably affected by rising input costs that outpaced the timing of increases~~a non-recurring $1.2 million charge in ~~selling prices. In addition, results were adversely impacted by operating inefficiencies and by $1.4 million as a result of charging~~2010 to cost of products sold for the ~~write-up~~write up of acquired inventory to fair value.

Pension ExpenseThe following table summarizes the amounts of pension expense recognized for the periods indicated:


	Nine months ended							Three months ended
	September 30							March 31
In thousands	2010		2009		Change			2011		2010		Change

Recorded as:
Costs of products sold	$	5,294	$	3,756	$	1,538		$	2,075	$	1,893	$	182
SG&A expense		1,637		1,807		(170	)		319		493		(174	)

Total	$	6,931	$	5,563	$	1,368		$	2,394	$	2,386	$	8

The amount of pension expense or income recognized each year is determined using various actuarial assumptions and certain other factors, including discount rates and the fair value of our pension assets as of the beginning of the year.

Other and UnallocatedThe ~~primary reason for the increase~~amount of net expenses not allocated to a business unit and reported as “Other and Unallocated” in ~~pension expense~~our table ofBusiness Unit Performancetotaled $4.8 million in the ~~comparison is due to changes~~first quarter of 2011 compared with net expenses of $12.9 million in ~~discount rates used.~~

~~Selling, general and administrative (“SG&A”)~~~~expenses totaled $91.3 million, a $10.9 million increase~~the year earlier quarter. The change was primarily due to the $8.5 million of non-recurring acquisition and integration ~~related~~ costs included in 2010 associated with the February 2010 Concert ~~transaction~~Industries acquisition (now Advanced Airlaid Materials) and ~~$4.4~~$3.2 million of ~~SG&A~~gains on dispositions of plant, equipment and timberlands in the first quarter of 2011. Excluding these items, other and unallocated net operating expenses increased $3.6 million primarily due to higher professional services fees. Gains on dispositions of plant, equipment and timberlands were primarily related to the sale of timberlands, from which cash proceeds totaled $3.4 million.

Non-operating income (expense) as presented in theBusiness Unit Performancetable includes $6.5 million of interest expense for the ~~inclusion~~first quarter of 2011, an increase of $0.8 million in the quarterly comparison primarily due to the $100.0 million in bonds issued in February 2010 being outstanding for a full quarter in 2011 compared with two months in the first quarter of 2010.

In the first quarter of 2010, non-operating income (expense) included a $3.4 million loss associated with forward foreign currency contracts that hedged the Canadian dollar purchase price of the ~~acquired operations.~~Concert Industries acquisition.

Income taxesFor the first ~~nine~~three months of ~~2010,~~2011, we recorded ana provision for income ~~tax benefit~~taxes of ~~$17.1~~$7.9 million on ~~$22.1~~$25.3 million of pretax income. The comparable amounts in the ~~same period~~first quarter of ~~2009~~2010 were income tax expense of ~~$14.6~~$0.4 million on ~~$92.0 million of~~ pretax ~~income. The benefit in 2010~~income that was ~~due to $23.1 million of cellulosic biofuel credits, net, recorded as an income tax benefit in~~essentially break-even. During the ~~third~~first quarter of 2010, ~~as further discussed below. In addition, the 2010 year to date results of operations includes $14.8~~we incurred $11.9 million of acquisition and integration costs, ~~most~~a significant portion of which are non-deductible. ~~The higher tax provision in 2009 was primarily due to the $75.6 million of alternative fuel mixture credit earned in that period.~~

In October 2010, the IRS issued further guidance concluding that both the alternative fuel mixture credit and the cellulosic bio-fuel production credit can be claimed in the same year, but only for different volumes of black liquor.

~~We are in the process of evaluating opportunities, if any, to claim additional credits from qualifying activities.~~

Foreign CurrencyWe own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK, it is the British Pound Sterling, and in the Philippines the functional currency is the Peso. During the first ~~nine~~three months of ~~2010,~~2011, Euro functional currency operations generated approximately ~~24.9%~~28.6% of our sales and ~~23.8%~~27.5% of operating expenses and British Pound Sterling operations represented ~~8.8%~~8.3% of net sales and ~~8.6%~~8.1% of operating expenses. The translation of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

GLATFELTER

-23-

~~Three months ended September 30, 2010 versus the Three months ended September 30, 2009~~

~~The following table sets forth summarized results of operations:~~

Three months ended September 30
In thousands, except per share 2010 2009

Net sales $ 379,097 $ 312,358
Gross profit 55,740 82,465
Operating income 28,108 53,171
Net income 39,437 45,994
Earnings per share 0.85 1.00

~~The consolidated results of operations for the three months ended September 30, 2010 and 2009 include the following significant items:~~

After-tax Diluted EPS
In thousands, except per share Gain (loss)

2010

Cellulosic biofuel/alternative fuel mixture credit $ 23,100 $ 0.50
Acquisition and integration costs (407 ) (0.01 )

2009
Cellulosic biofuel/alternative fuel mixture credit $ 32,890 $ 0.72

The above items increased earnings by $22.7 million, or $0.49 per diluted share, in third quarter of 2010 and increased earnings by $32.9 million, or $0.72 per diluted share, in the third quarter of 2009.

Business Units Three months ended September 30
In millions Specialty Papers Composite Fibers Advanced Airlaid Materials Other and Unallocated Total
2010 2009 2010 2009 2010 2009 2010 2009 2010 2009

Net sales $ 217.3 $ 211.6 $ 103.7 $ 100.7 $ 58.0 $ — $ — $ — $ 379.1 $ 312.4
Energy and related sales, net 3.3 2.1 — — — — — — 3.3 2.1

Total revenue 220.6 213.8 103.7 100.7 58.0 — — — 382.4 314.5
Cost of products sold 184.3 178.1 85.6 85.7 54.9 — 1.8 (31.8 ) 326.7 232.0

Gross profit 36.3 35.7 18.2 15.0 3.1 — (1.8 ) 31.8 55.7 82.5
SG&A 13.4 14.9 8.5 9.2 1.9 — 4.1 5.3 27.8 29.3
Gains on dispositions of plant, equipment and timberlands — — — — — — (0.2 ) — (0.2 ) —

Total operating income (loss) 22.9 20.8 9.7 5.8 1.2 — (5.7 ) 26.5 28.1 53.2
Non-operating income (expense) — — — — — — (6.6 ) (4.0 ) (6.6 ) (4.0 )

Income (loss) before income taxes $ 22.9 $ 20.8 $ 9.7 $ 5.8 $ 1.2 $ — $ (12.3 ) $ 22.5 $ 21.5 $ 49.2

Supplementary Data

Net tons sold 195.4 199.9 22.8 20.2 22.1 — — — 240.3 220.1
Depreciation, depletion and amortization $ 8.9 $ 10.6 $ 5.7 $ 6.1 $ 2.0 $ — $ — $ — $ 16.6 $ 16.8
Capital expenditures 5.1 2.1 2.7 3.2 — — — — 7.8 5.2

~~The mathematical accuracy of certain amounts set forth above may be impacted by the rounding of the individual line items.~~

~~GLATFELTER~~

~~-29-~~

~~Sales and Costs of Products Sold~~

Three months
ended September 30
In thousands 2010 2009 Change
Net sales $ 379,097 $ 312,358 $ 66,739
Energy and related sales — net 3,312 2,132 1,180

Total revenues 382,409 314,490 67,919
Costs of products sold 326,669 232,025 ⁽¹⁾ 94,644

Gross profit $ 55,740 $ 82,465 (26,725 )

Gross profit as a percent of Net sales 14.7 % 26.4 %



~~(1)~~		~~Includes $33.0 million of alternative fuel mixture credits.~~

~~The following table sets forth the contribution to consolidated net sales by each business unit:~~

Three months ended
September 30
Percent of Total 2010 2009

Business Unit

Specialty Papers 57.3 % 67.8 %
Composite Fibers 27.4 32.2
Advanced Airlaid Material 15.3 —

Total 100.0 100.0 %

~~Net sales~~for the third quarter of 2010 were $379.1 million, a 21.4% increase compared with $312.4 million for the third quarter of 2009, reflecting stronger market conditions for Composite Fibers and Specialty Papers products, as well as the top-line contributions of the Advanced Airlaid Materials business unit.

In the Specialty Papers business unit, 2010 third quarter net sales increased $5.7 million, or 2.7%, to $217.3 million. The increase was primarily due to a $12.4 million benefit from higher average selling prices partially offset by lower volumes in the quarter-over-quarter comparison.

Specialty Papers’ 2010 third quarter-operating profit increased $2.1 million compared with the prior-year quarter as the benefit of higher selling prices was partially offset by $5.8 million of higher raw material costs and $5.6 million of unfavorable operating and production activities primarily due to a press roll failure.

~~The following table summarizes sales of excess power and related items for the third quarters of 2010 and 2009:~~

In thousands 2010 2009 Change

Energy sales $ 3,850 $ 5,127 $ (1,277 )
Costs to produce (2,651 ) (2,995 ) 344

Net 1,199 2,132 (933 )
Renewable energy credits 2,113 — 2,113

Total $ 3,312 $ 2,132 $ 1,180

In Composite Fibers, 2010 third quarter net sales were $103.7 million, an increase of $3.0 million, or 3.0%, from the third quarter of 2009. The improvement in Composite Fibers’ net sales reflects strengthening demand in all of its product lines as volumes shipped increased 13.2%. Net sales increased despite an $8.5 million adverse impact from the translation of foreign currencies and a $0.9 million impact of lower selling prices.

Composite Fibers’ operating profit increased $3.9 million, or 67.2%, in the quarter-to-quarter comparison. Improved market conditions and business development initiatives increased shipping volumes eliminating the need for market-driven down time together benefiting operating profit by $2.5 million. In addition, improved operating efficiencies contributed $3.6 million more than offset the net negative impact of higher fiber prices.

Advanced Airlaid Materials’ operating income was negatively impacted by an increase in fluff pulp costs and a lag in related cost pass through arrangements. Operating income was also adversely impacted by operating inefficiencies and a less favorable mix of products sold.

~~Pension Expense~~~~The following table summarizes the amounts of pension expense recognized for the periods indicated:~~

Three months ended
September 30
In thousands 2010 2009 Change

Recorded as:

Costs of products sold $ 1,703 $ 1,254 $ 449
SG&A expense 491 604 (113 )

Total $ 2,194 $ 1,858 $ 336

The amount of pension expense or income recognized each year is determined using various actuarial assumptions and certain other factors, including the fair value of our pension assets as of the beginning of the year.

~~GLATFELTER~~

~~-30-~~

~~Selling, general and administrative (“SG&A”)~~expenses in the third quarter of 2010 totaled $27.8 million, a $1.5 million decrease compared to the same quarter of 2009, as the additional SG&A related to the inclusion of the Concerts results in 2010 were offset by lower incentive compensation, legal and professional costs.

~~Income taxes~~For the third quarter of 2010, we recorded an income tax benefit of $17.9 million on $21.5 million of pretax income. The comparable amounts in the third quarter of 2009 were income tax expense of $3.2 million on $49.2 million of pretax income. The benefit in 2010 was due to $23.1 million of cellulosic biofuel credits, net, recorded in the third quarter of 2010. The higher tax provision in 2009 was primarily due to the $33.0 million of alternative fuel mixture credit earned in that period.

~~Foreign Currency~~We own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK it is the British Pound Sterling, and in the Philippines the currency is the Peso. During the third quarter of 2010, Euro functional currency operations generated approximately 26.1% of our sales and 25.7% of operating expenses and British Pound Sterling operations represented 8.4% of net sales and 8.2% of operating expenses. The translation of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.

~~The table below summarizes the effect from foreign currency translation on third quarter of 2010 reported results compared to the third quarter of 2009:~~

Three months
In thousands ended September 30
Favorable
(unfavorable)
Net sales $ (8,547 )
Costs of products sold 6,704
SG&A expenses 574
Income taxes and other 220

Net income $ (1,049 )

The above table only presents the financial reporting impact of foreign currency translations. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

LIQUIDITY AND CAPITAL RESOURCES

Our business is capital intensive and requires significant expenditures for new or enhanced equipment, for environmental compliance matters, to support our research and development efforts and for our business strategy. In addition we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the years presented:


	Nine months ended						Three months ended
	September 30						March 31
In thousands	2010			2009			2011			2010

Cash and cash equivalents at beginning of period	$	135,420		$	32,234		$	95,788		$	135,420
Cash provided by (used for)
Operating activities		123,380			119,514			27,613			20,370
Investing activities		(252,016	)		21,874			(4,683	)		(239,142	)
Financing activities		60,315			(62,696	)		(4,307	)		113,074
Effect of exchange rate changes on cash		(3,766	)		5,314			1,526			(3,147	)

Net cash (used) provided		(72,087	)		84,006
Net cash provided (used)								20,149			(108,845	)

Cash and cash equivalents at end of period	$	63,333		$	116,240		$	115,937		$	26,575

As of ~~September 30, 2010,~~March 31, 2011, we had ~~$63.3~~$115.9 million in cash and cash equivalents and ~~$218.3~~$219.6 million available under our revolving credit agreement. At the end of 2009, we had $135.4 million of cash and $194.3 million available under our revolving credit agreement. Since the refinancing of the revolving credit agreement in April 2010 and the collection of the $54.6 million tax refund discussed below, we have not had any outstanding balances under the revolving credit agreement.

Operating cash flow improved by ~~$3.9~~$7.2 million in the first ~~nine months~~quarter of ~~2010~~2011 compared to the same ~~period~~quarter of ~~2009. Net~~2010. The improvement in cash ~~provided by working capital and other items declined $4.0~~flow was largely due to the receipt of a $17.8 million ~~in comparison~~income tax refund, primarily due to cellulosic biofuel credits claimed in connection with the filing of our 2009 federal income tax return. This refund partially offset the increase in net cash used for accounts receivable and less cash generated from inventory reductions. In addition, operating cash flow in the first nine months of 2010 benefited from the collection of a $54.9 million tax refund related to alternative fuel mixture credits. In 2009 we funded an environmental paymentworking capital associated with ~~the Fox River matter using $6.5 million~~growth in ~~cash.~~sales.

Net cash used by investing activities totaled ~~$252.0~~$4.7 million in the first ~~nine months~~quarter of 2011 compared with $239.2 million in the first quarter of 2010. The 2010 ~~reflecting~~first quarter reflects the Concert acquisition. Capital expenditures totaled ~~$23.3 million and $16.7~~$8.1 million in the 2011 first ~~nine months~~quarter compared with $6.1 million in the same quarter of ~~2010 and 2009, respectively.~~2010. Capital expenditures are expected to total $60 million to $65 million for 2011.

~~Net~~For the first quarter of 2011, net cash ~~provided~~used by financing activities ~~totaled $60.3~~was $4.3 million, substantially all of which was payment of dividends. The comparable amount from financing activities in the first ~~nine months~~quarter of 2010 was a net provision of $113.1 million reflecting increased borrowings to fund the Concert acquisition including the proceeds, net of debt issue costs and original issue discount, from the issuance of $100.0 million of senior notes, at 95% of par. In the comparable period of 2009 net cash used for financing activities totaled $62.7 million, primarily reflecting reductions of debt including $34.0 million repaid in connection with the unwinding of the 2003 timberland installment sale.

~~During the first nine months of 2010 and 2009 cash~~Cash dividends paid on common stock totaled ~~$12.6~~$4.2 million in both the first quarters of 2011 and ~~$12.4 million, respectively.~~2010. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.

In April 2011, our Board of Directors authorized a share repurchase program for up to $50.0 million of our outstanding common stock. We intend to make these repurchases over the next 12 months in accordance with applicable securities regulations. The timing and actual number of shares repurchased, if any, will depend on a variety of factors including the market price of the company’s common stock, regulatory, legal and contractual requirements, and other market factors. The program, which does not obligate us to repurchase any particular amount of common stock, may be modified or suspended at any time at the Board’s discretion.

The following table sets forth our outstanding long-term indebtedness:


	Sept. 30,		Dec. 31,			March 31,		Dec. 31,
In thousands	2010		2009			2011		2010

Revolving credit facility, due April 2011		n/a	$	—
Revolving credit facility, due May 2014	$	—	$	—		$	—	$	—
Term Loan, due April 2011		—		14,000
7⅛% Notes, due May 2016		200,000		200,000
7⅛% Notes, due May 2016 - net of original issue discount		95,363		—
7¹/₈% Notes, due May 2016							200,000		200,000
7¹/₈% Notes, due May 2016 - net of original issue discount							95,698		95,529
Term Loan, due January 2013		36,695		36,695			36,695		36,695

Total long-term debt		332,058		250,695			332,393		332,224
Less current portion		—		(13,759	)		—		—

Long-term debt, net of current portion	$	332,058	$	236,936		$	332,393	$	332,224

Our credit agreement contains a number of customary compliance covenants. In addition, the Senior Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity, or a default under the credit

agreement, which accelerates the debt outstanding thereunder. As of March 31, 2011, we met all of the requirements of our debt covenants. The significant terms of the debt obligations are set forth in Item 1 — Financial Statements — Note ~~12.~~11. Although we do not have immediate intentions to make additional use of our ~~credit~~ facility, we believe this agreement, and the banks that are party to it, provides us with ready access to liquidity should we need it.

We are subject to ~~loss contingencies resulting from regulation by~~ various federal, state ~~local~~ and ~~foreign governmental authorities with respect to the environmental impact of mills we operate, or have operated. To comply with environmental~~local laws and regulations which operate to protect the environment as well as human health and safety. We have, at various times, incurred significant cost to comply with these regulations, as new regulations are developed or regulatory priorities change. Currently, we ~~have incurred substantial~~anticipate that we could incur material capital and operating ~~expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary~~costs to comply with ~~environmental~~several air quality regulations ~~will continue,~~including the U.S. EPA Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and ~~perhaps increase,~~the Boiler Maximum Achievable Control Technology rule (Boiler MACT). Although we are in the ~~future.~~process of analyzing the potential impact of these requirements, compliance could require significant capital expenditures. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. See Item 1 — Financial Statements — Note 1514 for a summary of significant environmental matters.

We expect to meet all of our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, our credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 — Financial Statements — Note ~~15,~~14, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.

Our credit agreement contains a number of customary compliance covenants. A breach of these requirements would give rise to certain remedies under the credit agreement as amended, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility. In addition, the Senior Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the credit agreement at maturity or a default under the credit agreement, that accelerates the debt outstanding thereunder. As of September 30, 2010, we were not aware of any breach of any such requirements.

Off-Balance-Sheet ArrangementsAs of ~~September 30, 2010~~March 31, 2011 and December 31, ~~2009,~~2010, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a partnership, are reflected in the condensed consolidated balance sheets included herein in Item 1 — Financial Statements.

~~GLATFELTER~~

~~-32-~~

OutlookFor Specialty Papers, we expect shipping volumes ~~in the fourth quarter of 2010~~ to be approximately ~~five percent less than~~5% lower in the ~~third~~second quarter of ~~2010~~2011 compared with the first quarter of 2011 reflecting normal ~~seasonality. Selling prices~~seasonal patterns. The impact of higher energy costs and ~~input costs~~purchased pulp are expected to ~~remain substantially unchanged~~be offset by higher selling prices and benefits from continuous improvement initiatives. We also plan to complete the annually scheduled maintenance outages at both the Chillicothe and Spring Grove facilities in the ~~same comparison; however, our mix~~second quarter of ~~products sold is~~2011. The outages are expected to ~~be less favorable due~~adversely impact second-quarter results by approximately $19 million to normal market softening in the fourth quarter. In addition, we expect Specialty Papers’ fourth quarter 2010 results relative to the 2010 third quarter to be adversely impacted by normal seasonal downtime, lower energy sales approximating $1$20 million, ~~and additional LIFO related charges approximating $1 million.~~pre-tax.

For Composite Fibers, we anticipate shipping volumes in the ~~Company anticipates shipping~~second quarter of 2011 to be slightly higher than the first quarter. Input costs for pulp, base paper, and other materials are expected to increase faster than selling prices. In addition, our continuous improvement efforts in manufacturing resulted in record output during the first quarter and an inventory build. Therefore, in the second quarter we may need to take actions to reduce this inventory build, which together with the rate of cost increase discussed above, could adversely impact sequential quarter earnings by approximately $2 million.

Shipping volumes, selling prices and input costs in the fourth quarter of 2010 to be relatively in line with the third quarter of 2010. We also expect contracted energy prices to be higher, along with a slightly extended normal seasonal outage in December for maintenance work and inventory alignment as it enters 2011.

~~Shipping volumes~~ for the Advanced Airlaid Materials business unit ~~in the fourth quarter of 2010~~ are all expected to be ~~apprioximatelt 5% lower~~slightly higher than the ~~third~~first quarter of 2011. In addition, we expect to see continued benefit from our cost reduction and input costs are expected to remain in line. Selling prices are expected to be approximately $1.4 higher in the fourth quarter as we will contractually pass on the impact of the higher input costs from prior periods. Input costs are expected to be generally in line with third-quarter 2010 levels.operations improvement initiatives.

GLATFELTER

-25-

PART II

ITEM 1.~~LEGAL PROCEEDINGS~~

As more fully described herein in Part I, Item 1 – Financial Statements – Note 15 (“Note 15”), on October 14, 2010, the United States and the State of Wisconsin in an action captioned United States v. NCR Corp., No. 1:10-cv-910-WCG (the “Action”), commenced litigation against twelve parties, including us, in the United States District Court for the Eastern District of Wisconsin. The Action seeks to recover on claims under Superfund arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River and in the Bay of Green Bay Wisconsin (the “Site”). The United States and Wisconsin seek to recover from each of the defendants, jointly and severally, all of the governments’ past costs of response, a declaration as to liability for all of the governments’ future costs of response, and compensation for natural resource damages, as well as injunctive relief to require remedial action with respect to certain portions of the Site known as Operable Units 2-5.

~~For a complete discussion of this Action and the Site, refer to Note 15.~~

~~ITEM~~ 6.EXHIBITS

The following exhibits are filed herewith or incorporated by reference as indicated.


31.1		Certification of ~~George H. Glatfelter II,~~Dante C. Parrini, Chairman, President and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

31.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.

32.1		Certification of ~~George H. Glatfelter II,~~Dante C. Parrini, Chairman, President and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

32.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	P. H. GLATFELTER COMPANY (Registrant)
~~November 9, 2010~~May 6, 2011	By	/s/ David C. Elder
		David C. Elder
		Vice President and Corporate Controller

GLATFELTER

~~-34-~~-27-


	Nine months ended
	September 30				Three months ended
In thousands, except per share	2010		2009		March 31, 2010

*Pro forma*
Net sales	$	1,104,802	$	1,035,210	$	366,531
Net income		51,036		85,951		9,968
Diluted earnings per share		1.10		1.88
Earnings per share						0.22


	Open Tax Years
	Examinations not yet		Examination in
Jurisdiction	initiated		progress

United States
Federal		2007 — 2010		N/A
State		2005 — 2010		2004 & 2006-2008
Canada (1)		2006 — 2010		2008 — 2009
Germany (1)		2008 — 2010		2003 — 2009
France		2007 — 2010		N/A
United Kingdom		2007 — 2010		N/A
Philippines		2010		2009


			~~Examination in~~
~~Jurisdiction~~	~~Open tax year~~		~~progress~~


~~United States~~
~~Federal~~		~~2007 — 2009~~		~~N/A~~
~~State~~		~~2005 — 2009~~		~~2004 & 2006 — 2008~~
~~Canada~~ (1)		~~2005~~ — ~~2007~~		~~2008 — 2009~~
~~Germany (1)~~		~~2007 — 2009~~		~~2003 — 2009~~
~~France~~		~~2006 — 2009~~		~~N/A~~
~~United Kingdom~~		~~2006 — 2009~~		~~N/A~~
~~Philippines~~		~~N/A~~		~~2007 — 2009~~
includes provincial or similar local jurisdictions, as applicable


	Sept. 30,		Dec. 31,		March 31,		Dec. 31,
In thousands	2010		2009		2011		2010

Raw materials	$	54,417	$	44,150	$	53,017	$	52,538
In-process and finished		86,460		78,340		100,175		94,118
Supplies		52,931		45,880		56,096		54,421

Total	$	193,808	$	168,370	$	209,288	$	201,077


	September 30,		Dec. 31,
In millions	2010		2009

Pension Plan Assets
Fair value of plan assets at end of period	$	499.1	$	485.7


	September 30, 2010				December 31, 2009				March 31, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
In thousands	Value		Value		Value		Value		Value		Value		Value		Value

Fixed-rate bonds	$	295,363	$	300,250	$	200,000	$	196,750	$	295,698	$	309,642	$	295,529	$	304,115
Variable rate debt		36,695		38,525		50,695		51,209		36,695		37,500		36,695		37,780

Total	$	332,058	$	338,775	$	250,695	$	247,959	$	332,393	$	347.142	$	332,224	$	341,895


Business Units	Nine months ended September 30
In millions	Specialty Papers				Composite Fibers				Advanced Airlaid Materials				Other and Unallocated						Total
	2010		2009		2010		2009		2010		2009		2010			2009			2010			2009

Net sales	$	633.8	$	595.6	$	307.2	$	287.3	$	138.1	$	—	$	—		$	—		$	1,079.2		$	882.9
Energy and related sales, net		8.8		6.2		—		—		—		—		—			—			8.8			6.2

Total revenue		642.6		601.8		307.2		287.3		138.1		—		—			—			1,088.0			889.1
Cost of products sold		560.9		528.2		255.8		246.1		130.4		—		5.6			(70.0	)		952.6			704.3

Gross profit		81.7		73.6		51.5		41.2		7.8		—		(5.6	)		70.0			135.4			184.8
SG&A		40.1		40.8		26.6		26.3		4.4		—		20.2			13.3			91.3			80.4
Gains on dispositions of plant, equipment and timberlands		—		—		—		—		—		—		(0.3	)		(0.7	)		(0.3	)		(0.7	)

Total operating income (loss)		41.6		32.8		24.9		14.9		3.4		—		(25.4	)		57.4			44.4			105.1
Non-operating income (expense)		—		—		—		—		—		—		(22.3	)		(13.1	)		(22.3	)		(13.1	)

Income (loss) before income taxes	$	41.6	$	32.8	$	24.9	$	14.9	$	3.4	$	—	$	(47.8	)	$	44.3		$	22.1		$	92.0


Supplementary Data
Net tons sold		576.3		556.2		67.1		59.4		53.2		—		—			—			696.6			615.6
Depreciation, depletion and amortization	$	26.2	$	28.4	$	17.6	$	17.5	$	5.0	$	—	$	—		$	—		$	48.8		$	45.8
Capital expenditures		13.8		9.1		6.0		7.5		3.5		—		—			0.1			23.3			16.7


	Nine months			Three months
In thousands	ended September 30			ended March 31
				Favorable
	Favorable			(unfavorable)
	(unfavorable)
Net sales	$	(8,255	)	$	(501	)
Costs of products sold		5,785			(464	)
SG&A expenses		422			(12	)
Income taxes and other		292			70

Net income	$	(1,756	)	$	(907	)


*ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS*


	Year Ended December 31															At September 30, 2010				Year Ended December 31															At March 31, 2011
Dollars in thousands	2010			2011			2012			2013			2014			Carrying Value		Fair Value		2011			2012			2013			2014			2015			Carrying Value		Fair Value

Long-term debt
Average principal outstanding
At fixed interest rates — Bond(1)	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	295,363	$	300,250	$	300,000		$	300,000		$	300,000		$	300,000		$	300,000		$	295,698	$	309,642
At variable interest rates		36,695			36,695			36,695			1,407			—			36,695		38,525		36,695			36,695			1,407			—			—			36,695		37,500

																$	332,058	$	338,775																$	332,393	$	347,142

Weighted-average interest rate
On fixed rate debt — Bond		7.13	%		7.13	%		7.13	%		7.13	%		7.13	%
Weighted-average interest rate On fixed rate debt — Bond																					7.13	%		7.13	%		7.13	%		7.13	%		7.13	%
On variable rate debt		1.66			1.66			1.66			1.66			—							1.66			1.66			1.66


Exhibit
Number		Description
31.1		Certification of ~~George H. Glatfelter II,~~Dante C. Parrini, Chairman, President and Chief Executive Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of ~~2002.~~2002, 18 U.S.C. Section 1350 — Chief Executive Officer, filed herewith.

31.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 302(a) of the Sarbanes-Oxley Act of ~~2002.~~2002 — Chief Financial Officer, filed herewith.

32.1		Certification of ~~George H. Glatfelter II,~~Dante C. Parrini, Chairman, President and Chief Executive Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ~~18 U.S.C. Section 1350.~~— Chief Executive Officer, filed herewith.

32.2		Certification of John P. Jacunski, Senior Vice President and Chief Financial Officer of Glatfelter, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section ~~1350.~~1350 — Chief Financial Officer, filed herewith.